Earnings season has got off to a spectacular start with virtually every heavyweight — Infosys, Reliance Industries, Idea Cellular, Maruti Suzuki, Bharti Airtel — surpassing the Street’s expectations. This time around even smaller firms — Exide, Marico, Dabur, Rallis — have surprised analysts. Nevertheless, commentary remains somewhat cautious which is understandable given two weak monsoons and no discernible turn in the capex cycle.
Some commodity players are in a spot as the losses at Cairn show — the oil explorer took an impairment charge of Rs 11,700 crore and reported weak revenues on the back of lower production volumes and lower realisations for crude oil. However, that cement manufacturers have been able to push through meaningful volume increases is encouraging even if these are coming off a low base.
Moreover, a few firms have been able to take price increases so that net realisations have improved. Indeed, although it’s early days, there are signs of a broad-based recovery in India Inc; it’s not merely the IT majors like Infosys and Tata Consultancy Services (TCS) that have done well.
Infosys, of course, set the mood for the current year projecting revenues of 11.5-13.5% — in constant currency terms. But carmakers such as Maruti are also expected to do well posting double-digit volume growth — and sustaining the higher realisations.
The sole capital goods player to have reported results for the March quarter–ABB — saw weak order inflows which were below the quarterly average. Other manufacturers are unlikely to do very much better.
However, consumer durables seem to be seeing better demand. That pricing power is returning to manufacturers was evident from Maruti Suzuki’s smart 12.3% jump in revenues for the three months to March which was driven by a 4% y-o-y increase in volumes and an 8.2% y-o-y increase in average selling prices.
Meanwhile, volumes rose a smart 15% year-on-year at Ultratech Cement—and although realisations were weak, falling 9% y-o-y, the lower power and fuel costs drove up the ebitda 4% year on year. Ambuja Cements also reported higher volumes, up 10% year-on-year while ACC’s volumes rose 9% y-o-y. Telecom operator Bharti Airtel’s domestic wireless business turned in a good show; voice traffic grew a smart 11% y-o-y, the highest in 18 quarters while data volumes increased 69% reflecting the benefits of being the first mover in the 4G space.
For a sample of 133 companies (excluding banks, financials, Cairn and Vedanta) net revenues have risen 4 % y-o-y which is reasonable in the current disinflationary environment. With expenditure flat, operating profit margins have risen 300 basis points y-o-y driving up the operating profit by a strong 20% y-o-y and net profits by 22.3% y-o-y.
The good news is that many of the smaller companies have done well; Exide reported a 12.3% rise in operating profits well above estimates on the back of an increase in revenues of 6.6% yoy. Rallis posted ahead-of-estimates results with the international business back on track. The performance has resulted in earnings upgrades for the company. There are some weak spots. The management at Bajaj Corporation, for instance, pointed out that rural demand remains subdued; growth in the hinterland was down 1-2% in January and February, the lowest in the past 14-15 quarters. As such, it expects the benefits of a good monsoon to filter through in the second half of the year. The biggest disappointments have come from Axis Bank and ICICI Bank which have needed to make bigger provisions for loan losses. At Axis Bank, provisions rose 65% y-o-y, marring an otherwise decent set of numbers. Provisions at ICICI Bank too were higher at Rs 3,326 crore.