It?s been a quiet start to the earnings season so far, characterised by a couple of big disappointments, no surprises and very cautious commentary. Indeed, it was Infosys? rather muted outlook for the near term that set the tone and, although TCS sounded a tad more optimistic, managements across India Inc seem, by and large, low on confidence. Reliance Industries? poor numbers, with net profits falling 13.6% y-o-y to R4,440 crore despite a boost from other income, will surely dampen the mood on the Street. Indeed, demand isn?t what it could be and, moreover, infrastructure bottlenecks continue to disrupt production.
Again, a weaker rupee has both hurt and helped; so, while Bajaj Auto gained from better export realisations, Hero MotoCorp ended up paying more as royalty, while JSW Steel took a hit of R500 crore due to translation losses. The start performer, so far, has been the ever-reliable HDFC Bank, which clocked a 31% increase in net profits without hurting its balance sheet the slightest bit; indeed, credit costs at a very low 60 basis points were remarkable.
For a clutch of around 150 companies (excluding banks and financials), net sales have risen by more than 30% y-o-y, in keeping with the trend in the top line growth seen in the September 2011. Some of this is because of the big jump in RIL?s top line of 40% y-o-y. However with expenditure outpacing revenues, operating profit margins (opm) for the sample have fallen by about 400 basis points y-o-y to around 18%.
As a result net profits are up just about 5% y-o-y, once again because RIL?s profits fell 13.6% y-o-y, while JSW Steel?s profits crashed 55%.
Moreover, Jet Airways turned in losses of R101 crore, the fourth straight quarter of losses. In the September quarter, for the same sample, net profits had risen nearly 12% y-o-y. There has been a big jump in other income; at ITC, for instance, it rose 48% y-o-y and RIL, too, saw a big increase.
Infrastructure bottlenecks continue to hurt; as the JSW Steel management pointed out, the company had iron reserves only for another three months. But, even otherwise, numbers are below expectations.
Take Jindal Steel and Power?s consolidated net profits of R995 crore that missed estimates with the Ebitda (earnings before interest, tax, depreciation) coming in way lower than expected , thanks to inventories piling up and the power business reporting flat sales y-o-y and a fall in net profits.
Demand has been sluggish, but the company hopes to liquidate inventory of steel products and pellets over the next two quarters. The story is somewhat similar in the consumer space too; for instance, Rajiv Bajaj, managing director, Bajaj Auto, appears to have scaled back a little: Sales, he feels, may grow at around 16% in 2011-12 rather than the 20% anticipated earlier. Demand in the home market did come off a bit towards the end of 2011, Bajaj says, ruling out any price increases in the near term. It?s creditable, however, that Pune-headquartered two wheeler major?s margins have risen 90 basis points sequentially to 21%, helped by higher sales of premium bikes.
In contrast, Hero Motocorp?s profitability was impacted because volumes of premium motorcycles fell as a share of total volumes; Ebitda margins declined 20 basis points sequentially to 12% and, as such, the profit after tax at R613 crore, up 26% y-o-y, was a shade below estimates.
The good news is that individuals do have an appetite for loans; HDFC Bank?s 22% y-o-y increase in assets was driven by retail loans. At parent HDFC, too, loan growth was a robust 21% y-o-y, indicating that there are enough home buyers.
Nevertheless, analysts have pared earnings estimates by about 6-8% for Hero Motocorp, in FY12?FY13 since volumes are expected to come off; the cut is smaller for Bajaj, which has a cushion in exports.