PSB, metal stocks improve RoE of BSE-200 firms in FY17

By: | Published: November 2, 2017 4:36 AM

The return on equity (RoE) of BSE-200 companies showed an uptick in FY17 after bottoming out a year ago, as metal companies and state-owned banks turned profitable, Bloomberg data showed.

PSB, metal stocks, PSB improve, metal stocks improve, metal companies, shareholder funds, commodity prices, rebound in commodity pricesThe return on equity (RoE) of BSE-200 companies showed an uptick in FY17 after bottoming out a year ago, as metal companies and state-owned banks turned profitable, Bloomberg data showed. (Image: Reuters)

The return on equity (RoE) of BSE-200 companies showed an uptick in FY17 after bottoming out a year ago, as metal companies and state-owned banks turned profitable, Bloomberg data showed. The RoE witnessed an increase of 74 basis points in FY17 over the previous fiscal. The gauge, which measures how well firms invest in shareholder funds, stood at 12.2% in FY17, compared with 11.5% in the previous year. The combined net profit of the sample grew at 16.9% in FY17 compared to a decline of nearly 1% in FY16 and close to 6% in FY15. The surge in profit in FY17 is largely aided by a low base effect and a rebound in commodity prices that benefited earnings of metal players and led to some state-owned lenders end their loss-making stint.

Vedanta reported a net profit of Rs 5,512 crore in FY17 after posting losses in two successive years. Similarly, JSW Steel reported a net profit of Rs 3,523 crore in FY17 against a loss in FY16 while Jindal Steel and SAIL narrowed their FY17 losses. Public sector lenders including Bank of Baroda, Canara Bank and Punjab National Bank swung to profits in FY17, against losses in the previous financial year. The three lenders together had posted a net loss of Rs 11,364 crore in FY16.

Bank of Baroda reported a net profit of Rs 1,815 crore in FY17, against a loss of Rs 5,068 crore in FY16. Foreign brokerage Nomura, which has a ‘buy’ rating on the stock, observed in a recent note that the pre-provision operating profit outlook is better than peers as the capital levels will not constrain growth. “We expect +12% ROE in FY19,” the brokerage said. Analysts at Credit Suisse said that starting early April, the pace of cuts to expected FY18 EPS picked up with consensus earnings per share (EPS) falling 3.2%.

However, EPS growth for BSE100 firms continues to be at 14% y-o-y, with sharp profit improvement expected for PSU banks and consumer discretionary sectors. “The expected growth in private bank earnings is in line with past trends, and the rebound in metals earnings is likely to continue into FY18,” the brokerage said in a strategy report post Q4 earnings. Stellar profit growth reported by state-owned oil marketing companies also boosted the return ratio. While the earnings of HPCL grew by 76% to Rs 8,236 crore in FY17, IOCL saw its profit surging to Rs 19,849 crore, up 65%.

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