Mid caps fare worse than large peers in December quarter

Written by fe Bureau | Mumbai | Updated: Feb 26 2014, 17:55pm hrs
InvestmentMid caps companies have lagged their large-cap counterparts, in keeping up with market expectations.
Although Q3 numbers of India Inc have broadly been deemed below estimates, mid caps have lagged their large-cap counterparts, in keeping up with market expectations.

Due to slower relative revenue growth, and a sharp drop in other income, mid caps underperformed large caps at both operating and net margin levels, shows an FE compilation of the December quarter numbers.

An analysis of 105 large-caps and 89 mid-cap companies, excluding those from the financial and banking domain, that have announced their December quarter results, shows that while large caps reported a 41-bps contraction in net profit margins compared to the last year, mid caps witnessed a 116-bps y-o-y drop.

Although a similar quantum of companies (20%) from both samples reported a decline in revenue growth compared to the same quarter last year, the mid-cap pack witnessed a muted aggregate earnings growth, affecting their Q3 performance.

Even the aggregate other income of the mid-cap universe saw a sharp y-o-y decline of 24%, while that of the large-cap sample grew by more than 10% y-o-y.

The large-cap universe benefited from strong quarterly show by some IT and pharma stocks, while companies that trimmed aggregate earnings belonged to the struggling capital goods, metals, construction and power space.

Mid-cap Infra and construction players like Oberoi realty, Unitech, and Prestige Estates reported a decrease in quarterly profits compared to last year. Companies like GMR Infra, JP Power Ventures, Dish TV, Hathway Cable,Torrent Power and Tata Chemicals either continued to make losses or turned loss-making.

The slowdown in economic activity was also well reflected by the mid-cap numbers, with as many as 20 companies, including Ashok Leyland, TTK Prestige, UPL, and Engineers India, witnessing a drop in their quarterly revenues.

Mid-sized banks, which were not included in the aggregate compilation, were the worst performing lot, with eight of the 13-pack reporting a decline in their y-o-y net earnings.

Elevated interest rate also seemed to be making matters worse for some companies that witnessed a drop in their interest coverage ratio a gauge of a company's ability to cater to its outstanding debt.

Interest cost for Phoenix Mills, Torrent Power

and Petronet LNG grew sharply, affecting the interest cover (Ebit/interest cost) of these companies compared to last year.

Collectively, the interest coverage of the mid-cap space improved marginally (3 bps) sequentially while that of the large caps increased by 54 bps.