A strong set of numbers from technology firms, together with sterling performances from heavyweights Reliance Industries and ITC, have given India Inc a flying start this earnings season. Both Infosys and Tata Consultancy Services set the markets on fire before the slow movers — the two-wheeler players — tempered the sentiment. Hero MotoCorp was a huge disappointment with the company reporting a 20% year-on-year drop in net profit as it sold more of less profitable models while Bajaj Auto’s bottom line rose just 3% y-o-y as margins contracted.
That apart, the trends have been encouraging. Almost all private sector banks to have announced results have done exceeding well in what is seen to be a highly competitive environment. HDFC Bank reported its customary 30% y-o-y rise in profits, its asset quality as impeccable as ever, while Axis Bank did well to post a 22% y-o-y increase in the bottom line.
For a sample of 77 companies (excluding banks and financials), skewed heavily in favour of software giants, revenues grew nearly 19%, y-o-y, comparable with the previous three quarters. With companies keeping costs in check, operating profit margins expanded nearly 200 basis points, a sharp improvement over the previous three quarters when they had contracted by anywhere between 150 and 400 basis points. Consequently, operating profits saw a big jump of 38% y-o-y, driving up the bottom line for the sample by an impressive 51% y-o-y. That compares with a 17% increase in the three months to September and a drop in the two quarters before that.
RIL’s presence in the sample does tend to distort the picture — it posted a 24% y-o-y rise in net profit to R5,502 crore on the back of strong refining margins and a rebound in margins for the petrochemicals business. ITC’s profits rose 21% with tobacco revenues robust and non-tobacco FMCG revenues up 30% y-o-y.
However, it’s early days yet and industry continues to tread cautiously. Bajaj Auto MD Rajiv Bajaj, for example, believes the road ahead could be bumpy for a bit. Operating margins in manufacturing continue to be under pressure. At Exide, for instance, they crashed 170 basis point y-o-y while Hero Moto’s gross margins were dented by 104 basis points and at Hindustan Zinc they fell 190 basis points. The software set remains optimistic; TCS MD & CEO N Chandrasekaran says the environment remains good and deal flow strong.
Nevertheless, what’s remarkable about the quality of