The latest earnings season is turning out to be a dud with increasing number of negative surprises. The third quarter (fiscal 2014-15) numbers have so far disappointed the market with about one in every three BSE 100 companies that reported their quarterly numbers so far, posting a decline in their year-on-year net profit.
Reflecting this trend, a Bloomberg compilation of actual Q3 earnings against Street expectations for 200 odd companies indicates that cumulative earnings have lagged expectations by 14.8%, the highest negative surprise since the last eight quarters. While 72 companies included in the list managed to either meet or surpass earnings expectations, as many as 131 companies reported earnings that were below expectations.
While the negative surprises were spread across sectors, unlike the last two quarters, financial services and consumer goods companies also added to the disappointment in Q3.
In the financial services space, asset quality concerns re-emerged as most public sector banks, including, Bank of Baroda, Punjab National Bank, Union Bank, United Bank and UCO Bank witnessed higher provisioning towards bad loans and increased non performing assets.
Amongst the private banks, even as ICICI Bank reported record quarterly profit, a sequential increase in its net NPA for the quarter to 1.27% disappointed the Street. Despite reporting an over 25% y-o-y growth in net profits, earnings of both IndusInd Bank and Kotak Mahindra Bank were below consensus expectations as per Bloomberg data.
Hindustan Unilever and ITC delivered the biggest shocks this earnings season, sending their stocks plummetting as numbers were announced. While HUL’s 3% y-o-y volume growth for the three months disappointed the Street, both the topline and bottomline for ITC failed to meet analyst estimates as the cigarette maker faced pressure in the business segment, due to sharp increase in value added tax (VAT) in Tamil Nadu, Kerala and Assam.
The 11% y-o-y growth in the net earnings of Asian Paints during the December quarter was also below expectations as the largest paint company in India reported a single digit volume growth in the decorative paints segment due to sluggish domestic demand.
Oil & gas producers, Reliance Industries and Cairn India both reported decline in quarterly profits on expected lines. Below expectations revenue growth from TCS and an over 25% y-o-y drop in the quarterly profit of Tata Motors also emerged as negative surprises of the earnings season.