Net sales growth picks up pace in March quarter

Fiscal fourth-quarter earnings of top Indian companies that have reported financial results show net sales grew at the second-fastest pace in six quarters, indicating that a recovery is under way.

Aggregate net sales rose 12.8% in the three month ended 31 March from a year earlier, the second fastest pace since the quarter ended 31 December 2012, according to a Mint analysis of 78 of the BSE 500 companies.

These companies have reported March quarter earnings and comparable data for them was available for the previous 15 quarters. Banks and software companies were excluded from the analysis.

“The green shoots could gather momentum if we have a stable government taking charge at the centre,” said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services Ltd. “On the other hand, a turnaround will be delayed in case there is an unstable government. If that happens, all economic activity tends to get confusing and uncertainty

The prospects for a rebound in economic and corporate earnings growth are likely to hinge on whether a stable government can be formed after the results of the national election are announced on 16 May.

Opinion polls published before voting began in the nine-phase elections on 7 April forecast that the Bharatiya Janata Party (BJP) and its allies will win most seats but may fall short of a majority.

Investors expect a coalition led by the BJP’s Narendra Modi to cut subsidies, boost infrastructure creation and be friendly to businesses. These steps, they say, will boost economic growth.

The government has forecast that Asia’s third largest economy will expand 4.9% in the year to 31 March from a decade’s low of 4.5% in the previous year.

While sales growth has gained pace, profit growth slowed, underscoring the challenges faced by companies in a faltering economy.

“The key thing needed for corporate earnings to turn around would be a pick-up in GDP (gross domestic product), which we are yet to see,” said Deven Choksey, managing director and chief executive of KR Choksey Shares and Securities Pvt. Ltd.

Operating profit for these 78 companies grew 7.48%, the slowest since the September 2012 quarter. Net profit rose 1.96% from a year earlier. In the previous few quarters, income from one-time items skewed earnings growth. In the quarter ended 31 December, net profit declined 32.6%, largely because of an unfavourable base effect from the year-ago period when profit had doubled because of a spike in other income.

To be sure, this analysis includes the results of only those companies that have reported March quarter earnings. So far, only 106 companies of the BSE 500 index have done so, and the findings may change with more companies reporting earnings.

Meanwhile, margins have shown steady improvement. The March quarter net profit margin for these companies stood at 8.87%, while the operating profit margin was at 17.38%. Both the measures were the best in four quarters.

In a note dated 29 April, Barclays Research said the results season is off to a positive start with 18 of 22 BSE 100 companies reporting positive earnings surprises and one of them reporting in-line figures.

“A lot of factors collectively have contributed to the profitability. Cost cutting, better other income, tax reversals and currency depreciation are some of them,” said Gopal Agrawal, chief investment officer for the India operations of Mirae Asset Global Investments.

Telecom companies have largely fared better than expected, with sector leader Bharti Airtel Ltd posting an 89% surge in its fourth-quarter profit, its second straight gain in quarterly profit after almost four years of declining growth, while rival Idea Cellular Ltd beat analysts’ profit and sales estimates helped by higher revenue from data growth.

Reliance Communications Ltd was an exception. The country’s fourth largest mobile carrier by subscribers posted a 48% drop in quarterly profit to Rs.156 crore because of a surge in expenses and taxes.

Energy companies that have reported March quarter earnings have not disappointed investors.

Reliance Industries Ltd said March quarter profit rose 0.8% to Rs.5,631 crore, the highest quarterly profit in more than two years, helped by better-than-expected refining margins and a weaker rupee that boosted exports.

However, the consumption story seems to be running into trouble, with Hindustan Unilever Ltd (HUL) and Godrej Consumer Products Ltd reporting March quarter earnings that have disappointed investors.

HUL said consumer products sales in India rose 9% in the quarter, but the underlying volume growth was only 3%, slower than the 4% seen in the preceding three months. Its volume growth has slowed from an average of 11.6% for fiscal year 2011-12.

Smaller rival Godrej Consumer Products saw volumes in its soap business decline 4% in the quarter ended March.

The automobile industry continued to reel under the pressure of weak consumer demand. The country’s largest car maker Maruti Suzuki India Ltd reported a 35.5% drop in profit on lower sales and higher costs.

The earnings of the top four Indian software services companies were mixed, with softer-than-expected revenue growth, IDFC Securities Ltd said in a 22 April note.

Tata Consultancy Services Ltd and smaller rival HCL Technologies Ltd performed well and forecast an optimistic outlook for the current fiscal year, while the managements of Infosys Ltd and Wipro Ltd suggested they will take longer to work around client and leadership issues.

“The muted revenue growth was largely led by subdued volume growth as companies indicated a slower ramp-up of large discretionary deals at the beginning of the calendar year,” IDFC analysts Hitesh Shah and Abhishek Gupta said in the note.

 

Private banks, with the exception of HDFC Bank Ltd, posted profits that beat analysts’ earnings estimates.

ICICI Bank Ltd, India’s top lender outside government control, reported that net profit for the quarter ended 31 March rose 15%, driven mainly by earnings not core to its operations, while smaller rival Axis Bank Ltd’s net profit in the same period increased 18%, driven by higher interest it earned from loans.

HDFC Bank Ltd, the nation’s second largest private lender, posted a 25% net profit growth, missing analysts’ estimates. It posted the slowest net profit growth in at least 15 years during the quarter, because of a higher tax surcharge and the absence of tax credits that were available in the year-ago period.

pratima kumari
pgdm 2nd sem