The first month of this earning season so far shows a continuous contraction in margins, both operating as well as net earnings, even as topline continued to show a healthy expansion.
According to Bloomberg data for a set of 390 companies that reported their June quarterly results so far, the net profit fell 1% as compared to the last year. The earnings reported so far have disappointed the market with a subset of 98 companies collectively showing a negative surprise of 3%. Negative surprise of 3% means that actual earnings of companies in aggregate were 3% below the market (analyst) estimates.
This negative surprise was mainly contributed by companies from sectors such as technology, oil & gas and industrials. On the other hand, consumer goods, financial and healthcare companies posted the highest positive earnings surprise of 5-7%. From the group of 98 companies whose actual quarterly earnings were compared to Bloomberg consensus estimates, more than half posted a surprise positive earnings while about 45% of them failed to meet the earning estimate for the June quarter.
A compilation of the June quarter numbers of 117 BSE-500 companies ( excluding financials) shows a sequential (q-o-q) as well as y-o-y decline in operating and net margins. While the topline of these companies showed a healthy 33% growth as compared to the corresponding quarter of the previous year, a sustained rise in raw material and interest costs have affected the profit margins substantially.
While operating profit margin fell 1.24% on a y-o-y basis, net profit margin fell by 0.52%. On a sequential basis, revenues fell by 1.7% which according to analysts reinforces a decline in demand and could get evident over the next two quarters. The results season so far is largely overshadowed by muted to negative guidance for the current fiscal like in case of IT majors, auto and utility companies.
In case of Banks, private players like Axis, Kotak Mahindra and HDFC Bank have surpassed market expectations. However, a number of PSU banks like Canara bank, Bank of India and Corporation bank have reported dismal quarterly numbers due to a decline in net interest margins and rising NPAs.