After Infosys and Reliance Industries, another of India Inc?s big boys, Bharti Airtel, turned in numbers for the March 2011 quarter that were below estimates leaving investors somewhat blue halfway through the earnings season. The telecom major?s profits crashed 31% y-o-y in the three months to March 2011 as it forked out more by way of interest costs. Moreover, despite higher steel prices steel giant SAIL too saw its adjusted profits plummet 26% y-o-y as operating margins came off by 600 basis points due to higher prices of raw materials including coal. While the season hasn?t been too disappointing analysts nonetheless believe that there could be earnings downgrades ahead.

Bharat Iyer, head of Research at JP Morgan said, ?We went in with lower expectations given the high base effect and macroeconomic headwinds and there have been a couple of disappointments. The results have largely been in line.?

Iyer, however, believes that there will be some downgrades to earnings and therefore, earnings growth for the Sensex in 2011-12 would come in at just around 15%. Rahul Singh, head of research, Standard Chartered Securities, said, ?It?s been a bit of a mixed bag and there are signs of stress in some sectors such as banking. Given what we were expecting there has been some slippage and so there could be some downgrades.?

For a sample of 648 companies (excluding banks and financials), net sales in the three months to March 2011, grew a strong 25% y-o-y, not surprising in a highly inflationary environment. However, since total expenditure rose at a faster pace, operating profit margins have come off by just under 100 basis points y-o-y. And thanks to a sharp rise in depreciation and some increase in interest costs, net profits have risen just 13% y-o-y. At an absolute level of 17.84% the margins are reasonably good though it must be remembered that the sample would be somewhat skewed by the presence of large IT firms which typically post much higher operating margins.

Otherwise, as Standard Chartered?s Singh points out, there has been a fair amount of margin compression which is likely to persist for the next couple of quarters. For instance, although it posted a strong top line growth operating margins at Escorts were down 300 basis points y-o-y while the net profits were boosted by tax writebacks. Marico?s gross margins slumped 900 basis points although sales were up 24% pulling down the operating profit despite a cut in adspends. Titan reinforced its brand power reporting strong volumes up 15% in jewellery on a high base but margins fell 300 basis points y-o-y. ?At Thermax revenues in the March quarter were up 41% y-o-y, ?ahead of expectations, but margins contracted by 100 basis points y-o-y to 11%. The bigger worry for the street however, is that managements have turned a tad cautious and are scaling back on guidance.

Crompton Greaves believes the stand-alone business (excluding overseas subsidiaries) will grow by about 12-15% in 2011-12 whereas earlier it had said the business might grow a little faster at 16-18%.

The reduced guidance is partly on account of lower orders from the power space last year. In fact, with order inflows at Thermax lower by 8% in 2010-11 because of fewer large power project orders, analysts have lowered the price target for the stock by about 10%.

Among the companies that fared well in a tough environment was Hero Honda which reported an operationally better quarter with a better product mix resulting in a strong top line growth of 31% y-o-y and good operating margins, of 12.2%, which rose 120 basis points sequentially.

It was a subdued quarter for Glaxo Smithkline Consumer with revenues up just 9.5% y-o-y though it maintained ebitda margins at 20.5% despite an increase in input costs.