The September 2010 results season has got off to a fairly good start, with Infosys turning in a strong set of numbers. The tech major?s operating profit margins (OPM) expanded 170 basis points sequentially to 33.3%, driven by better pricing and utilisation. However, as Citigroup points out, any meaningful upgrade to the IT firm?s earnings for 2010-11 is unlikely given the sharp appreciation of the rupee. Not all companies lived up to expectations though. With high input costs playing spoilsport, battery maker Exide?s numbers came in a shade below estimates with the company posting an OPM of 21.8% ? way below the margins seen in the comparable quarter a year ago. The margins were also 100 basis points lower than the OPM seen in the three months to June 2010. In contrast, lubricants major Castrol was able to expand its OPM in the September quarter, despite a higher raw materials bill, with the firm asserting its pricing power and earning better product realisations. A good monsoon seems to have helped Rallis post a strong top line growth of 15% year-on-year and help it report a small improvement in its margins to 24% with raw material costs coming off sharply.
For a sample of 42 companies (excluding banks and financials), net sales are up a strong 17.5% year on year. That?s better than the 15% year-on-year growth seen in the June 2010 quarter.
However, the operating profit margin in the three months to September 2010 has contracted 322 basis points, resulting in an increase in the operating profit of just 5 % year-on-year. That is despite the fact that raw material costs as a share of sales is lower; the culprits are higher staff costs and administrative expenses. If the net profit for the sample is up a smart 22%, compared with a rise of just 2% in the June 2010 quarter, it?s thanks partly to a huge jump in other income and savings on interest outflows.
One company whose bottom-line has got a boost from higher other income is Sintex, which came by way of a foreign exchange game.
Results of some banks and home loan firms (not part of the sample) that have come in haven?t disappointed the Street. Axis Bank?s results were in line with expectations; while the growth in the loan book at 36.5% year-on-year was drive by lending to large corporates, sequentially the growth has been less than 2% and is clearly moderating. That apart, the quality of assets deteriorated with a slippage of 2% though provisioning coverage is high at 80%. The management has, however, indicated there could be a slippage in the SME portfolio. LIC Housing Finance?s non-performing loans went up sharply by 21% sequentially, while the coverage level dropped to 72%. That was one reason for the strong increase in the bottom-line of 37% year-on-year though it must be noted that the loan book did grow an impressive 36% year-on-year.