Tata Motors drives up BSE Sensex Q3 earnings in December

Written by fe Bureau | Mumbai | Updated: Feb 20 2014, 21:13pm hrs
BSE SensexTata Motors, along with and IT and pharma cos, contributed substantially to the aggregate profits of Sensex in december.
Aggregate BSE Sensex earnings for the December quarter reported a double digit y-o-y growth (19.4%), staying ahead of analyst estimates. However, a closer look shows that quarterly numbers of Tata Motors skewed the earnings advance while export-driven companies from IT and pharma space also contributed substantially to the aggregate profits.

Excluding the auto major whose international operations (JLR) have boosted its profitability since the last two quarters, the aggregate Sensex profit growth stood at 11% y-o-y. Even at the topline and operating levels, an exclusion of Tata Motors lowered the y-o-y growths by 300 basis points each.

In the three months to December 2013, the net profit of Tata Motors almost tripled to Rs 4,805 crore on the back of robust JLR sales even as its domestic business remained under pressure. In the last six months, the weaker domestic currency that lost 12% of its average value compared to the previous year, has backed the export-driven company's financials. Tata Motors earns more than two third of its revenues and operating profit from its international operations.

For the quarter, robust profits of Tata Consultancy Services (TCS) ( Rs 5,333 crore, y-o-y 50%), Sun Pharmaceuticals Industries (Rs 1,531 crore, up 74%), Infosys (Rs 2,875, up 21%) and ONGC ( Rs 7,126 crore, up 28%) also aided the aggregate earnings. On the other hand, Tata Power ( net loss of Rs 75 crore), Tata Steel (Rs 503 crore, down 166%), BHEL (Rs 695 crore, down 41%) and SBI (Rs 2,839 crore, down 39%) weighed on the aggregate numbers.

Given that IT and pharma companies were the key contributors to the earnings growth, analysts optimism on these companies went further up.

The 12-month target price of four of the six companies from these defensive space rose by more than 5% after they reported their Q3 numbers. While seven Sensex companies witnessed rating upgrades post the results, Bajaj Auto, Wipro and ITC saw the highest upgrades.

The buy rating on Bajaj Auto stock went up by 17% and for the other two it increased by 10% of the total analyst ratings, shows the Bloomberg data. Cipla and Maruti Suzuki India witnessed the most downgrades while Hindustan Unilever saw about 12% of the sell ratings getting upgraded to a hold recommendation. In terms of the one-year expected target price Wipro, Infosys and Dr Reddy's Lab led the way.

Healthy earnings growth of Sensex companies notwithstanding, the broader market failed to meet the earnings estimates. As per Bloomberg earnings analysis, for a set of 200-odd companies, the average earnings growth lagged analyst estimates by 5%. As per for BofAML, around 60% of the companies from its universe disappointed analyst estimates.

We continue to believe that elections and rate cycle rather than earnings growth will drive markets over next 3-4 months, the brokerage said in a recent review report.