Even as analysts have started pricing in the effect of higher inflation on corporate earnings in their FY12 estimates , the first set of results for the March quarter indicates that corporate India has still not lost its footing in terms of the earnings growth for the quarter.
More than half of a group of 450 companies that have announced their March quarter results in April, managed to post a positive earnings growth compared to the same quarter last year. Further, a subset of 87 companies managed to beat the street estimates by 4.8%. In contrast, December quarter earnings of 295 companies showed that earnings failed to meet analyst expectations by 2%.
From the group of 87 companies whose actual quarterly earnings were compared to broader market estimates, about 46 companies posted a surprise positive earnings while about 41 companies failed to meet the earning estimates for the quarter.
On the whole, almost half of the companies from the sample set of 87 showed a positive or negative earning deviation in the range 0% to 20% while 5 companies outpaced the market expectations by 20-50%.
The result season so far has been overshadowed by a somewhat subdued numbers of some of the market biggies like Infosys, Reliance industries and Maruti Suzuki. The inability of Infosys to meet its revenue guidance for the quarter was a major disappointment in this earnings season as the IT major gave a muted EPS guidance for FY12
Similar was the case with Reliance industries which reported a lower than expected 14.1% growth in net profit on the back of a disappointing gross refining margins. Automaker, Maruti Suzuki while reported a 20% growth in its quarterly revenue, the operating margins remained weaker even as the growth in net profits was cushioned by a decline in tax rate.
Markets earning growth is primarily driven by the IT, materials and banking sector, which account for higher weightage in the index. While IT companies on the whole maintained their growth momentum, TCS in particular, benefited from the recovery in the developed economies. As per a review report by HSBC securities, TCS benefited due to revenue growth that came from across geographies with the majority of incremental revenues for coming from North America,and Continental Europe.
Metal companies while are expected to benefit from a base effect Sterlite, also benefited from cost controls and a surge in prices of silver.
This indicative set of results appears to substantiate the outlook of a set of analysts who expect flatter margin growth in Q3 and a lag effect of higher input and interest cost in terms of margin compression in the coming quarters.
?Companies from sectors like automobile, metals and cement protected their margins in the quarter by increasing prices and sacrificing a part of the volume. Yet, in the coming months as demand is expected to slow-down, it may be a difficult task for them to pass on higher costs which is likely to result into margin compression,?said Rakesh Arora.