It’s been a dull start to earnings season with just Reliance Industries (RIL) surprising the street so far. The headline numbers may not suggest it — the presence of RIL in a relatively small sample of companies, tends to give a somewhat misleading impression that all is well. But the first crop of results for the three months to June don’t tell the story of a strong recovery. Most heavyweights — Infosys, Hindustan Unilever, Cairn, TCS, JSW Energy, Ultratech and Hindustan Zinc and ITC —have turned in less-than-ordinary performances.
Given most companies have switched to AS4 accounting norms, exact comparisons with numbers from previous quarters are difficult. Which is why this time around, management commentary is being keenly heard and so far it remains very cautious. While it’s early days yet the IT space seems to be in a spot — Infosys dropped the revenue guidance for FY17 — and with high frequency data not substantiating a strong recovery, earnings estimates for the year could be downgraded.
HUL reported weak earnings with volumes growing just 4% y-o-y, a reflection of further deterioration in demand and decelerating market growth in the hinterland. Domestic consumer revenues grew at 3.6%, suggesting modest price deflation for the portfolio. Adjusting for AS4, analysts believe revenues may have grown slower at 2.9%.
Ultratech missed Ebitda estimates, at R1,370 crore, up 26% y-o-y, thanks to lower than expected volume growth of 6% yo-y. Reported revenues at R6,180 crore were up just 2% y-o-y. Hindustan Zinc’s ebitda fell 38% y-o-y due to smaller amounts of metals mined, down 45% y-o-y, due to higher waste mining.
While Ashok Leyland reported excellent numbers with profits growing 101% to R291 crore, y-o-y, this included a gain of around R50 crore on currency movements a result of the migration to AS4. n Nevertheless, the reported numbers were above estimates thanks to strong gross margins and lower interest costs. Revenues rose10% y-o-y led by an increase of 11% y-o-y in volumes;domestic volumes were up 15.5%. The bad news is that sales of trucks , while they have shown an uptick over the past six to eight months, may not sustain. The growth in volumes in June actually slowed to 1.9% and industry watchers don’t see any sharp uptrend soon.
ABB many not be the benchmark for the capital good space but the subdued profitability is nevertheless cause for concern. Order inflow growth, up 8%, was subdued in the quarter and the backlog at Rs 7800 crore. The management ‘s outlook for industrial capex remained somewhat gloomy prompting analysts to trim earnings estimates by about 6% for FY17.
TCS reported a revenue growth, in constant currency terms, of 3.1%, lower than estimates, partly because the key BFSI vertical posted a growth of 1.7%. JSW Energy started off the year on a dull note with plant utilisation lower and realisations coming in at sub-optimal levels because the power producer set aside large capacities at Vijayanagar for the impending sales contract with Karnataka. The company reported a 32% y-o-y growth in consolidated profits at Rs 360 crore driven by contribution from acquired hydro projects that posted profits for Rs 77 crore in the quarter.