1. India Inc loses too, faces string of downgrades

India Inc loses too, faces string of downgrades

Corporate earnings are being downgraded thick and fast following a disappointing earnings season in which a host of heavyweights...

By: | Mumbai | Published: February 11, 2015 1:18 AM
Economic growth, Economic growth India, Economic growth in India

Indeed, the economy may have grown by a smart 7.5% in Q3FY15, but that’s not reflecting anywhere in the performance by companies. (Reuters)

Corporate earnings are being downgraded thick and fast following a disappointing earnings season in which a host of heavyweights and most mid-caps have reported numbers well below Street expectations.

Indeed, the economy may have grown by a smart 7.5% in Q3FY15, but that’s not reflecting anywhere in the performance by companies. For a sample of 1,091companies (excluding banks and financials), net profits were down 10% year-on-year in Q3FY15, on the back of minuscule 1.3% y-o-y rise in sales and a 47% basis points fall in operating profit margin. Even a 234-basis points y-o-y fall in raw material costs (as a share of sales) couldn’t resurrect the bottom line.

As Sanjeev Prasad, senior executive director, Kotak Institutional Equities, observed on Tuesday, even as macroeconomic conditions improve, it’s not translating into better earnings. “Clearly, there was some kind of a disconnect building in between the valuations which had gone to very high levels and earnings which were not really increasing. People are now recalibrating those expectations,” Prasad told a television channel.

KIE now estimates Sensex earnings will grow at just 7% in the current year, against 14% anticipated around August-October and at 13-14% in FY16 from 16% expected earlier.

Q3-india-inc

While the sluggish volume growth of 3% y-o-y at Hindustan Unilever versus expectations of 5-6% and the drop in domestic volumes of 17% y-o-y at Bajaj Auto are signs that consumers are still holding back, the more than 14% drop in the standalone profit at Larsen & Toubro to R1,060 crore for Q3FY15 makes it clear the capital goods cycle is nowhere close to turning. L&T on Monday lowered the guidance for growth in its order book for FY15 to 15-20% from 20% earlier, saying recovery in its domestic business could be up to a year away.

While Reliance Industries’ earnings have been downgraded by 4% for FY15 over the last one month, with analysts pricing in the fall in the price of crude oil, in the case of Bajaj Auto too, earnings estimates have been lowered for 4% with demand expected to remain weak.

Following a relatively poor Q3FY15 in which its African operations again dragged down the profits, forecasts for Bharti Airtel’s consolidated Ebitda have seen a 3-4% cut while consolidated earnings have been pruned by 8-16% for FY16.

Analysts are now pencilling in only a single-digit volume growth for HUL and only a modest expansion in margins flowing through from lower raw material costs, since prices of several products have been lowered.

With Tata Steel having reported a fall of 69% y-o-y fall, analysts have trimmed the Ebitda estimates for FY15-17 by 9-16% thanks to sliding iron ore prices, aggressive dumping of steel by China and a declining cost curve arising out of the strength in the dollar.

Bank of Baroda and Punjab National Bank have seen sharp downgrades, of 12% to 18%, for FY15 given concerns of asset quality; there has been an increase in both non-performing assets and restructured assets in Q3FY15. Consensus expectations on the earnings potential of corporate India for FY15 and FY16 have been tempered; Sensex consensus earnings per share (EPS) estimates have come off 1% and 3% to Rs 1,792 and Rs 1,827, respectively, since January 2015.

According to Andrew Holland of Ambit Capital, the Q3 numbers of corporate India, while failing to meet market expectations, aren’t “alarming”.

“With lower commodity prices, the margin improvement is already under way. Financial gearing and substantial expansion of top line will follow the on-ground recovery going ahead,” Holland said.

The Sensex lost 490 points on Monday and ended in the red for the seventh consecutive day.

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  1. A
    Amit Chandra
    Feb 11, 2015 at 5:41 am
    Despite Lower commodity prices - India Inc. is facing earnings downgrade. Need to simplify tax - structure and resolve infra bottlenecks. Serious work and innovative thinking needed from Economic / Infra ministries Heads should roll / new talent should be roped in to get more accountability.....
    Reply
    1. H
      Harry Potter
      Feb 27, 2015 at 3:27 pm
      At LnT, the top-bres (schizophrenic Egyptian Mummies) have displa geriatric trait of biting more than they can chew and digest. Dear Investors/Analysts - Watch Out! LnT top-bres were on selling spree, leading the pack Chairman Mr Naik sold his LnT shares (Rs 1200 apiece) worth 70 crores in 20 days - March 2014. Post Q1-2014 results LnT plunged by 8 %, biggest intraday decline since July 2009. Hydrocarbon subsidiary suffered losses of 900 crores, sans stake at Dhamra Port (2500 crores) LnT would have posted losses. Modi /Market euphoria saved LnT going below Rs 1300 during q2, a striking closed range of 1200 of March 2014. Part stakes at LnT Inra sold to Canadian FII - (2000 crores), expecting VGF (Viability Gap Funding) of 3000 crores Hyderabad Metro project. Stake or post losses, Deep Sea or devil? Post Q2 results LnT share plummeted from high of 1673 to low of 1450 (17 Dec, 2014). Post Q3 results another big intra-day fall of 7.44 % and no wonder a 52 week low of 900 post Q4 results?------------------------------------------------------------Expensive CXO Maha Kumbh Mela at LnT - what is the number of CEOs at LnT and all its subsidiaries (138), their CTC? How far higher, this is to manage LnT group revenues of $14 bln than Mr Sikka (aged 46) of Infosys highest paid professional CEO (Rs 30 cr) in India, entrusted with business worth $ 8 bln in revenues. At LnT, just Chairman Mr Naik (aged 72) and group CEO Mr Vankatramanan are pegged at 21 and 14 crores. Information Age leaders, top-man of TATA group, Infosys, Microsoft are in their 40s, why this super 70s at LnT? Chairman Mr Naik’s jaw-dropping musings on succession – QUOTE- You find a man in the world who will kill himself four times a day, has worked for more than a hundred years-- There is no such person.-- None of us here (at senior level) are working for money -UNQUOTE. Please refer ToI article – Vibrant Gujarat summit Day 1: 25 private jets bring high-flyers. Excerpts – Cabinet ministers arrived via scheduled flights -- private jet of AM Naik left immediately after arriving –. Biggest shareholders at LnT are state owned LIC/UTI. To restore Insutional Integrity at LnT, PM Mr Modi should intervene to fix retirement age at L&T to 60 - ASAP!---------------------------------------------Like BCCI, L&T is no less cozy club, an Old-Men club enjoying Fire Proof jobs and stratospheric compensation. Any CXO/MD level official ever got fired in last 5/10 years or resigned on morals grounds at L&T? Please refer TOI article – whistleblower was right: CBI. Excerpts –Golden Quadrilateral Project--M/s L&T had misrepresented the facts. BS Article – Rajya Sabha nods for whistle blowers bill. Excerpts– sacrifice of Satyendra Dubey, an Indian Engineering Service officer who was killed after he tried to reveal corruption in the Golden Quadrilatera-. Please refer International Business Times article – $100 Million Sought as New Discrimination, Immigration Violations Complaint Filed against L&T. Please refer ET article – World Bank bars L&T for 6 months over forgery. ---------------------------------Biggest shareholders at L&T are state owned LIC/UTI. To restore Insutional Integrity at L&T, PM Mr Modi should intervene to fix retirement age at L&T to 60 -ASAP!!--
      Reply
      1. H
        Harry Potter
        Feb 11, 2015 at 2:32 pm
        At L&T, the top-bres (schizophrenic Egyptian Mummies) have displa geriatric trait of biting more than they can chew and digest. Dear Investors/Analysts - Watch Out! L&T top-bres were on selling spree, leading the pack Chairman Mr Naik sold his L&T shares (Rs 1200 apiece) worth 70 crores in 20 days - March 2014. Post Q1-2014 results L&T plunged by 8 %, biggest intraday decline since July 2009. Hydrocarbon subsidiary suffered losses of 900 crores, sans stake at Dhamra Port (2500 crores) L&T would have posted losses. Modi /Market euphoria saved L&T going below Rs 1300 during q2, a striking closed range of 1200 of March 2014. Part stakes at L&T Inra sold to Canadian FII - (2000 crores), expecting VGF (Viability Gap Funding) of 3000 crores Hyderabad Metro project. Stake or post losses, Deep Sea or devil? Post Q2 results L&T share plummeted from high of 1673 to low of 1450 (17 Dec, 2014). Post Q3 results another big intra-day fall of 7.44 % and no wonder a 52 week low of 900 by Feb end? Can any power on face of earth and in skies save LnT from plunging to Five Year Low of 600, post Q4 results??
        Reply

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