With more than 1,000 companies now reporting financial results for the March 2010 quarter and for 2009-10, analysts say there are unlikely to be too many meaningful earnings upgrades to numbers for the current year.
For one, there have not been any significantly positive surprises. Moreover, they point out that consensus earnings for 2010-11 and 2011-12 have already pencilled in a growth of around 22% and 19% respectively, thereby factoring in fairly strong momentum.
Currently consensus estimates, for the set of 30 companies in the BSE Sensex, put the earnings for 2010-11 at Rs 1,113 while the estimate for the following year is Rs1,326. Analysts have also pointed out that earnings are skewed in favour of energy companies and some commodity firms.
For a sample of 1,090 companies (excluding banks and financials) net sales, in the three months to March 2010, have risen by 37% year-on-year, which is a far better performance than that in the December 2009 quarter. Of course, some of the smart growth in the top line can be attributed to higher commodity prices and some of it to the low base effect.
However, much of the sheen of the impressive increase in the top line has been taken off by the lower operating profit margins (opm). The opm for the same sample has come off by 200 basis points year-on-year to 16% whereas in the December 2009 quarter they were at a much better 18%. The main reason for this is the higher cost of raw material ? the ratio of raw materials to sales in the March 2010 quarter has risen by 900 basis points year-on-year completely reversing the trend seen in both the December 2009 and September 2009 quarters when the ratio had actually fallen.
While telecom firms like Idea have surprised the Street with better-than-expected revenues, others like Maruti Suzuki have disappointed investors. Maruti reported sequentially lower opms of 13.2 % in the March 2010 quarter compared with just over 15% in the December 2009 quarter as it grappled with the higher cost of raw materials. Dr Reddy?s reported an increase in sales of 5% adjusting for sales of products for which it had exclusive rights in the March 2009 quarter. However, the biggest disappointments have come in from the capital goods space. As brokerage Nomura said in a recent report, continuing execution slippages reported by capital goods companies in the March 2010 quarter seems to suggest that the lag impact of the downturn is still being felt on capital goods companies and a swift turnaround in the capex cycle is a little further away than expected. ?That being said, the strength of the order books points to underlying demand for capex which should translate into sector revenues as execution picks up,? the report noted.