Q1 surprises positively on earnings

Profit beat of most Sensex and Nifty companies come in above estimates

If the June quarter numbers of Sensex companies is anything to go by then earnings growth is not only stable, but has even beaten estimates. The net profit of Sensex companies has grown by 14 per cent in the June quarter of FY13, while the market was expecting eight per cent. Operating profit, on the other hand, has grown marginally below estimates at eight per cent.

The rupee’s fall has played a big role in driving profitability for IT and pharma companies. Of the 30 Sensex companies, 11 have reported post-tax profit ahead of estimates, while numbers of five companies have come in below estimates. Earnings growth of the remaining 14 has been in line with expectations. The unprecedented growth of select companies has pushed up aggregate earnings growth rates. An example of this is the State Bank of India’s 137 per cent year-on-year growth in net profit. Likewise, Sun Pharma’s net grew by 59 per cent while the net profit of TCS grew by 34 per cent and Infosys by 33 per cent.

Even for the Nifty companies, the story is similar. Nifty’s aggregate year-on-year PAT growth (excluding BPCL) of 16 per cent has come in way ahead of the market’s estimated nine per cent. Here too, operating profit has come in marginally below estimates at nine per cent (Street estimated 10 per cent growth in Ebitda). This clearly indicates that there is a problem with profitability as demand is slowing and costs are not coming off substantially for companies. But the resilience in earnings suggests that Indian companies are adept at dealing with tough situations and will cut costs to stay profitable.

There are several companies that surprised the Street with lower-than-expected earnings. According to Motilal Oswal’s analysis, companies with negative earnings growth are: Tata Steel (-60 per cent), Bharti Airtel (-37 per cent) Tata Power (-26 per cent), Hindalco (-23 per cent), Maruti (-23 per cent), Reliance (-21 per cent) and Sterlite (-9 per cent).

While foreign currency debt has hurt the profitability of many, it has benefitted some positively as well. While those with high forex debt have seen their notional losses pile up, companies that export products and services have gained from the rupee’s fall. On the positive side, the earnings growth has been driven by players like SBI, HCL Tech and Sun Pharma. Analysts expect this trend to continue in the coming quarters too, which will be a big positive for the markets.