Early birds of India Inc set pace in the second quarter

Kishor Kadam & Vyas Mohan

MUMBAI: The early birds of India Inc have signalled an optimistic second quarter earnings season, giving the Bombay Stock Exchange Sensex enough reason to hit an all-time peak of 12,736 points last Friday.

Apprehensions on the underlying market strength have receded as a result among analysts. DNA Money did some number crunching and found that 45 companies in the manufacturing and services sectors have shown smart topline and bottomline growth in the second quarter (Q2) of the current year.

These companies have reported an aggregate growth of 41% in sales and 56% in net profits from last year’s corresponding period. On an aggregate basis, while their net profits grew from Rs 5,527.69 crore in Q2 of last year to Rs 7,796.34 crore in the same period of the current fiscal, net profits were up from Rs 947.09 crore to 1,475.25 crore in the same period.

“These numbers speak for themselves. Despite all constraints on the cost side of manufacturing, they have managed to notch up good numbers. This shows the intrinsic strength of Indian companies. They have probably laid a strong foundation for the Sensex in the days to come,” says Sandeep Shenoy, strategist at Pioneer Intermediaries.

The rise in revenues and profits has been accompanied by fatter profit margins, the research reveals. While the operating profit margins of these companies rose by 189 basis points (100 basis points make 1%), gross profit margins grew 208 basis points and net profit margins were up 179 basis points during the quarter, giving credence to the view that the quality of earnings has also improved during the quarter.

However, Shenoy adds a note of caution even as Dalal Street celebrates ahead of the festive season. “These earnings do not necessarily make the Sensex cheaper as some over-expectations may have been built into it,” he says. Another point is that the early birds always tend to have better results, and the aggregates are skewed by having the likes of Infosys announcing spectacular results.

Individual performances have been impressive. Out of the results of 45 companies under review, 25 clocked more than 30% growth in net sales. Only two reported a decline in net sales, while three showed a slump in net profits for the current earnings season.

However, caution has not fully disappeared as analysts await other corporate biggies to come out with their second quarter numbers. “These companies are not the leading companies in their respective sectors except for Infosys and Apollo Tyres. The big companies are yet to come out with their numbers. So, it will be a little premature to comment on what impact this could have on the Sensex,” cautions Sanjay Sinha, head of equities at SBI Mutual Fund.

Apart from manufacturing, companies in information technology have also done well for themselves, with Infy leading the pack. Infosys notched up a 50.4% growth in net sales to Rs 3,451 crore and a 53.3% increase in net profits to Rs 929 crore during the quarter. In the same period, Mastek has registered a 30% growth in net sales to Rs 196 crore and 41% in net profits to Rs 21 crore. I-gate Solutions’ net sales grew 30% to Rs 203 crore and net profits 80% to Rs 10 crore.

The construction boom in the country has helped cement companies. While Shree Cement recorded a whopping 103% rise in net sales to Rs 316 crore and 108% in net profit to Rs 78 crore, net sales of Dalmia Cement soared by 77% to Rs 250 crore and net profit 486% to Rs 52 crore.

Some of the other companies that put up a noteworthy performance were Sintex Industries (net profits up 90%), ESI (55.4%), Container Corporation (55%), Shrenuj & Company (28.8%), Gati (28.6%) and TN Newsprint (28%).

The coming week, which will see blue chips like TCS, Reliance, HDFC Bank and ICICI Bank announce their results, will be crucial to determining whether the initial market euphoria of Q2 results will last.