With two corporate heavyweights reporting results that were below expectations, the March 2011 quarter earnings season hasn?t exactly got off to a great start. First Infosys shocked the Street missing its revenue guidance for the quarter and coming up with a somewhat subdued outlook for the current year. Then Reliance Industries missed its bottom line estimate by a fairly wide margin, turning in refining margins that were far lower than what had been pencilled in.
However, its early days yet and by and large, India Inc has done reasonably well. HDFC Bank, for instance, posted a splendid set of numbers maintaining its net interest margins, in the three months to March, thereby driving up profits by 33% year-on-year. And although it didn?t really beat the Street?s expectations, TCS more than made up for dismal show by Infosys.
For a clutch of 78 companies (excluding banks and financials), net sales have risen a smart 26.6% year-on-year, which is far higher than the 13% seen in the December 2010 quarter. However, a higher raw materials bill ? up nearly 400 basis points ? has dented operating profit margins (OPMs) which have come off by about 140 basis points year-on-year to 16.7%. OPMs for the same sample of firms were stronger in the December 2010 quarter, at over 18%, because raw material costs had actually fallen.
The lower OPMs in the March 2011 quarter together with a sharp increase in interest costs have resulted in the net profit growing by 24.5% y-o-y. That?s a tad lower than the bottom line growth seen in the December 2010 quarter of 27.7% y-o-y.
The smart rise in the top line is partly because the sample includes large firms like Essar Oil, whose revenues have grown significantly on the back of higher volumes and soaring crude oil prices which push up gross realisations. The better refining environment allowed Essar to clock a gross refining margin of $8.1 per barrel, a jump of nearly $3 a barrel year-on-year.
The two surprises so far have been HCL Technologies, which reported a growth in sequential dollar revenues of nearly 6% and Zee Entertainment which managed higher than expected profit numbers thanks to smaller losses in its sports business and higher than anticipated advertising revenues. Foods major Nestle proved ?yet again that it continues to have pricing power; while sales rose a ?good 22.3% year-on-year, the growth in the ?bottom line was even more impressive at 27%. At Hindustan Zinc, production of zinc rose 29% year-on-year in the March quarter to help the company deliver a 28% year-on-year increase in the top line; net profits were up 43% thanks to expenses rising by just 27% and higher other income. The infrastructure space though may be cause for concern; Container Corporation?s revenues were up just under 5% year-on-year resulting in flat ebitda margins possibly because of a bigger share of volume discounts. The good news is that the Met department has forecast a good monsoon which suggests both a good monsoon and winter crop and therefore rising farm incomes.
However, prices of crude oil remain high at close to $124 a barrel and prices of other commodities too remain high. After the Q3 results season Bank of America Merrill Lynch pared its estimate for EPS of the Sensex to R 1,035 for 2010-11 from R 1,050. It also pruned the earnings estimates for 2011-12 to R1,265 from R1,300, which meant earnings would rise by 22%. At the current Sensex level of 19, 602, the market trades at a multiple of 15.5 times forward earnings, slightly higher than its long term average.