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How did first quarter earnings look? ‘Good but not great’

The News International Team

As the earnings season winds up and most of India’s notable corporates have posted their quarterly results updates, net profits were slightly ahead of estimates, according to projections by brokerage firm Kotak, but there was “limited evidence of a meaningful upgrades to earnings”.

Kotak was expecting earnings to grow 18.2 percent year-on-year in the first quarter of FY15, while they actually grew 19.3 percent. Operating profits grew 31 percent YoY, compared to an expectation of 29.5 percent.

But more importantly, this earnings growth was primarily driven by two stellar performers in the BSE 30 universe:  ONGC and Tata Motors .

“As many as 16 of the 25 non-financial companies in the BSE index missed our EBITDA estimates,” Kotak said, adding that that positive earnings surprise was also attributable to lower-than-estimated depreciation charged by companies under the new Companies Act, as well as a weaker exchange rate (Average rupee/USD was 59.8 this quarter compared to 56 in the year-ago quarter).

“Among the BSE 30 stocks, stocks that surprised at the EBITDA and net level were: Axis Bank , Bharti Airtel , DRL , Hindustan Unilever , ICICI Bank , M&M , Reliance Industries , SBI and Tata Motors ,” the brokerage said in its report.

Companies that reported an earnings disappointment included Bajaj Auto , HDFC Bank , Hero MotoCorp , L&T ,  NTPC and Tata Steel .

Also read: Mkt in consolidation phase, bullish on FMCG: Nilesh Shah

Kotak recommends stocks and sectors that are geared towards a recovery in the domestic economy and reforms.

“We believe economic reforms will pick up over the next six to 12 months, which will drive economic growth and lower fiscal deficit from FY2017. We also have a decent exposure to outsourcing stocks.” the report said.

Kotak expects the market to be range-bound until the government announces the next set of reforms and/or the RBI adopts a looser monetary policy.

“The Indian market is reasonably valued and we see limited scope for earnings upgrades over the next six-nine months.”

Economic reforms were India’s only hope for higher GDP growth in the medium term due to the lack of options available in fiscal and monetary policies, according to Kotak.

“Thus, we wait for more reforms but retain faith in the currency government’s ability and willingness to deliver progressive economic policies over the next few quarters.”


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