No fireworks for early birds

Q2 results so far suggest recovery will take longer

The results of 354 listed companies that have reported their July-September quarter so far suggest that there is hardly anything to cheer about. The sample includes 22 Nifty companies, and the total income is significant at Rs 4.41 lakh crore. Net sales and total income are both up by 7.3 per cent, year on year, but operating profits have grown by only 4.3 per cent. Net profits are down 2.4 per cent while interest costs are up eight per cent. So overall, sales are up marginally and net profits are down. The long-awaited recovery in revenue growth and profitability is still some time away.

There is one positive signal though: Depreciation is up by double-digits. Private consumption may be in the process of recovery, going by strong housing finance volumes. If banks are removed from this set of results, all other companies taken together have seen a 0.2-per cent shrinkage in net profits and a 5.3-per cent rise in operating profits. And if Reliance Industries, the only refining and exploration business in the mix, is taken out of the sample, the picture is a little brighter: Net profit is up six per cent for the sample, ex-banks and ex-refiners.

Some sector-specific performances are worth mentioning. There has been great improvement in profitability in the automobile ancillary sector where 16 companies have declared results. Here, the operating profits are up 50 per cent while net profits are up 88 per cent. Banks posted a dismal performance and things are expected to get worse. Only 15 banks have submitted results and of these four are public-sector banks (PSBs). As a whole, this set has seen anaemic credit volume growth of 13.3 per cent and net profits have fallen by 13 per cent. Provisioning for non-performing assets (NPAs) will continue to burden balance sheets. The results of PSBs, which all have large NPAs, are awaited with some trepidation. But the 44 finance companies in the set have done well with credit growth of 23.8 per cent and net profits going up by 15.3 per cent. Housing finance majors such as HDFC, LIC Housing, Dewan Housing and Indiabulls Housing have all seen double-digit growth in revenues and profits. This could translate into gains for the real estate sector.

Two export drivers, pharmaceuticals and information technology (IT), have not done well. The pharmaceutical sector has seen net profits shrink although several majors are yet to declare results. On the positive side, Biocon has scripted a turnaround, moving from Rs 10.6 crore losses in the September 2015 quarter to a strong profitability of Rs 146.7 crore last quarter. Dr Reddy's and Cadila Healthcare had poor results. The IT sector has weak advisories. The 27 companies that have released results include most of the big guns. Sales are up by 9.7 per cent in rupee terms while net profits are up by 5.7 per cent. The power sector also seems to have seen profits shrink, with JSW Energy and Adani Transmission both reporting lower profits while Adani Power continues to log losses that are, admittedly, declining. Fast-moving consumer goods sales are flat and telecom service majors Idea and Airtel have seen profitability drop sharply. Overall, therefore, there is hardly any cause for celebration.