The 30% growth in profit of the sample has been driven by banks, finance firms.

The performance of early birds is in line with market expectations, with 139 companies that have announced their results for the quarter ended September 2009 recording single-digit growth in sales and a healthy 27 per cent growth in net profit.

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It is too early to draw a conclusion on the basis of this sample size as it is less than 5 per cent of the number of listed companies. The 30 per cent growth in profit of the sample has been driven by banks and finance companies, which have reported a 40 per cent rise in net profit. If one excludes these two categories, the growth in net profit comes down to 22 per cent, almost similar to that in the first quarter.

Excluding banks and finance, the growth has been driven by two-wheeler giant Bajaj Auto, cement major UltraTech, seamless pipes’ manufacturers Jindal Saw, auto ancillaries’ maker Exide Industries and two realty firms, Peninsula Land and Parsvanath Developers.

However, the revenue growth rate continued to be subdued for banks as well as for services and manufacturing companies. The early birds’ second-quarter sales rose at a slower pace of 8 per cent compared with 10.7 per cent in the first quarter. The sales growth for services and manufacturing companies remained single-digit but marginally higher at 6.4 per cent compared with the sales growth rate of 5.9 per cent in the first quarter.
 

The good news is that things are changing in favour of the manufacturing sector as 70 companies — makers of automobiles, cement, capital goods, petrochemicals and sugar — reported a 8.1 per cent rise in sales compared to 6.6 per cent in first and around 3 per cent in third and fourth quarters of the previous financial year.

The impact of rising production costs is seen in the second quarter as the cost of raw material to sales has risen by 244 basis points over the first quarter. Since key raw materials such as steel, non-ferrous metals, iron ore and coking coal are comparatively cheaper over the year-ago levels, the cost of raw material to sales is down 800 basis points year on year.

The rise in raw material costs over the sequential quarter has resulted in a 35-basis-point decline in operating margins, but these are up by 800 basis points if measured year on year. Major beneficiaries of the decline in raw material costs are Bajaj Auto, Jindal Saw, Prism Cement, UltraTech Cement, Exide Industries, Praj Industries and Parsvanath Developers.

Among the best performers in the early birds, Bajaj Auto, UltraTech and Jindal Saw, have reported healthy quarterly profits on the back of improved margins and robust growth in sales. Bajaj Auto reported a net profit of Rs 403 crore, up 118 per cent on strong volume growth driven by new launches, a better product mix and lower input costs. The operating margins rose over 1,000 basis points year-on-year as the share of raw material in net sales declined to 66 per cent from 78.8 per cent a year ago. However, after recording a peak margin in this quarter, analysts expect increased input costs to pull down the full-year margins by around 200 basis points in the second half of the current year.

Jindal Saw’s results were above expectations. The seamless pipes’ realisation for the quarter was significantly higher sequentially and outweighed the negative surprise of lower volumes. This led the operating margin to improve by over 500 basis points year-on-year. However, analysts expect this to be an exceptional quarter and not to be sustained in the future. The orders from the US and the Middle East markets have started to come in. The company also sees good demand from Iraq and the Iran markets, says the analyst at Batlivala & Karani.

The pipe sector is in a gradual phase of revival. Orders from the US and the Middle East have started to come in. The company sees good demand from Iraq and Iran.

UltraTech Cement has reported a 53 per cent rise in net profit, lower than analyst estimates, mainly on account of higher-than-expected other expenditure, freight charges and power & fuel cost. The company has reported a revenue growth of 10.4 per cent, driven by a 4.4 per cent increase in volume and a 5.7 rise in realisation from cement.

The operating profit margin improved by 925 basis points, largely due to an increase in the blended realisation. A year-on-year decrease in raw material cost on a per-tonne basis and a reduction in power & fuel costs on account of a sharp correction in imported coal prices and enhanced share of power from captive thermal power plants also helped the company increase margins.

Infosys Technologies’ results were in line with expectations. The revenue grew around 3 per cent year-on-year while net profit jumped over 7 per cent on the back of strong volume growth. There was a 150-basis-point increase in operating margins due to cross-currency benefits and increasing offshore proportion of revenues.

The full-year guidance was below expectation, which disappointed the market. According to analysts at HSBC Global Research, recovery expectations and a revenue growth forecast of 15 per cent in financial year 2010-2011 were reinforced by the upward revision in hiring target for the full year (from 18,000 to 20,000). Incremental hires are likely to be laterals, which suggests that new development projects are in the pipeline.

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