Early bird earnings rise 24% to touch new high of around Rs 70,400 crore

RIL, JSW Steel together account for 70% of rise in net profit of 222 firms

India Inc’s September quarter (Q2) earnings season has gotten off to an encouraging start thanks to the large gains posted by metals and energy companies. This, however, masks the hit general manufacturers and consumer companies took on their margins as a result of higher input costs.

The combined net profit of the 222 companies that have declared results for Q2 of financial year 2021-22 (FY22) has risen 24.1 per cent year-on-year (YoY) to a new high of around Rs 70,400 crore, and is higher than the Rs 65,550 crore seen in Q1.

In comparison, these companies’ combined earnings rose 90 per cent YoY in Q1, and it was up 25.4 per cent YoY in Q2FY21.

The combined net sales of these early bird companies rose 29.6 per cent YoY to Rs 5.45 trillion in Q2, compared with Rs 4.84 trillion in Q1. (See adjoining charts)

Revenue growth slows down (Historical trend in India Inc's quarterly net sales)

The biggest gainers were companies in the oil and gas and metals and mining sectors, followed by IT services firms like Tata Consultancy Services, Infosys, Wipro and HCL Technologies. In fact, companies in these three sectors accounted for almost the entire growth in the combined earnings of the early bird sample on a YoY basis in Q2.

In contrast, general manufacturers and consumer goods makers reported a slowing of volume growth and a decline in margins, while companies in the BFSI (banks, financial services and insurance) space saw a further slowdown in gross interest income and an uptick in operating expenses such as salaries and wages.

The combined net profit of 18 oil and gas and metals companies in the sample – including Reliance Industries, JSW Steel, and Hindustan Zinc – jumped 80.5 per cent YoY in Q2, while their net sales increased by 52.7 per cent YoY. The companies reported record quarterly net profit of Rs 25,000 crore in Q2, accounting for 35.6 per cent of the combined earnings of all the early birds, which marked an increase from 24.5 per cent a year ago.

RIL was one of the biggest outperformers with a 43 per cent YoY jump in net profit and 50.7 per cent YoY rise in net sales in Q2. JSW Steel did even better with a 71 per cent YoY jump in net sales and 350 per cent jump in net profits from Rs 1,593 crore a year ago to Rs 7,170 crore in Q2. Together these two companies accounted for nearly 70 per cent of the incremental rise in the combined net profit of the sample.

BFSI

Though firms in the BFSI space reported a slowdown in interest income (gross), they saw double-digit growth in earnings, thanks to gains from lower interest costs.

The combined gross interest income of the BFSI companies in the sample rose 4.5 per cent YoY in Q2 — growing at the slowest pace in three quarters. However, their net profit rose 11.2 per cent thanks to an 8.1 per cent YoY decline in interest costs, which have fallen now for five consecutive quarters.

Analysts expect this trend to reverse in the next few quarters as bond yields have begun to rise in India, which is likely to raise the borrowing cost for BFSI companies.

Meanwhile, general manufacturers and consumer goods makers were hit by a sharp increase in commodity and energy prices. Many companies in these sectors reported sequential decline in net profits, despite strong revenue growth. It was the same with IT services companies.

The combined net profit of the companies – excluding banks, non-banking financial companies (NBFCs), insurance, oil and gas, and metals – rose 4 per cent YoY in Q2, against a 180 per cent YoY growth in Q1, and 31.3 per cent YoY growth in Q2FY21.

Their net sales increased 21.4 per cent YoY in Q2, driven by higher volumes and prices. This was lower than the 28.6 per cent YoY growth reported in Q1, but represented a big jump over the 0.8 per cent YoY growth seen in Q2FY21.

Some of the big non-cyclical companies in the early bird sample are TCS, Infosys, Wipro, HCL Technologies, Hindustan Unilever, Nestlé, Asian Paints, Tata Consumer, UltraTech Cement, ACC, Havells India, and TVS Motors.

Analysts expect a change in the earnings trajectory as more manufacturing and consumer goods companies declare their results.