Not that analyst and investors were expecting any firework from September quarter earnings, the period marred with slack business indicated sluggish growth and slow recovery. In the September quarter, Sensex companies profit after tax (PAT) shrunk 2 percent while sales fell 6 percent and EBIDTA decreased 1 percent.
Poor rural demand, low volume growth and lack of pricing power weighed on companies earnings last quarter. However, declining global commodity prices continued to be saving grace. Gross margins of few companies have expanded due to savings in raw material costs. ICICIdirect.com says the extent was somewhat limited as few companies had to pass on the raw material benefits to its end customers while others had to increase advertisement and promotional expense to push their products in the marketplace.
Revenues of Sensex companies excluding banks, NBFCs, oil & gas and the metals & mining sector increased 6 percent (year-on-year) to Rs 251503 crore in Q2FY16 while PAT was up 6.6 percent aided by higher other income. Key beneficiary of gross margin and consequent operating margin expansion were companies in the lubricants sector and airlines sector.
Analysts see the gloominess to continue in the third quarter as well. ICICIdirect.com expects the trend to continue till Q3FY16 wherein margin expansion will play out, following which a gradual up-tick in capacity utilisation will add to a meaningful earnings recovery by FY17.
As a result, Motilal Oswal has cut Sensex earnings per share (EPS) by 2 percent in FY16 and expects it to grow 6 percent YoY to Rs 1435. According to Prabhudas Lilladher, investment cycle on infrastructure side will lead revival with the government frontloading massive spend in sectors like roads, railways, power transmission.
So, despite muted expectations there were few companies that still surprised street with their Q2 earnings.
#1 Tata Motors
Its Q2 was blown away by Tianjin Port explosion and finance cost as Jaguar Land Rover cars were damaged in the blast. It reported a loss of Rs 430 crore during July-September quarter against profit of Rs 3,290.8 crore in year-ago period. It had to bear an additional charge of Rs 2,493 crore (which was one-time hit) on account of 5,800 vehicles damaged at Tianjin Port explosion in Jaguar Land Rover business. It also included forex loss of Rs 114 crore for the quarter against gain of Rs 26.5 crore in year-ago period.
Other income, operating profit, low provisions boosted profitability but higher tax cost limited growth while asset quality also improved. The country’s largest lender’s Q2 standalone profit shot up 25.1 percent to Rs 3,879 crore from Rs 3,100.4 crore year-on-year. Net interest income, increased by 7.4 percent to Rs 14,252 crore from Rs 13,274.6 crore in same period. Gross non-performing assets as a percentage of gross advances declined to 4.15 percent in September quarter compared 4.29 percent in preceding quarter and 4.89 percent in year-ago period.
Slow revenue growth in cigarette business, agri business, hotels and paper business hurt its Q2 bottomline. Its Q2 profit rose to Rs 2,431 crore from Rs 2,425 crore in year-ago period. Revenue fell 1.4 percent to Rs 8,904 crore compared to Rs 9,024 crore in same period. Motilal Oswal has cut earnings for FY15-17 by 5-6 percent and model for 12 percent cigarette volume decline in FY16.
The state-run power equipment maker posted a loss of Rs 205 crore in July-September quarter against profit of Rs 124.84 crore on yearly basis. Lower revenue and weak operational performance hit bottomline but other income and tax write back limited losses. Revenue declined 3.35 percent to Rs 5,938 crore but surpassed estimates. BHEL expects 22GW of ordering in FY16, largely from the state sector.
#5 Dr Reddy’s Laboratories
Its Q2 was boosted by strong operational performance and robust growth in US, Europe and India businesses. Its Q2 profit grew by 25.8 percent year-on-year to Rs 722 crore while revenue increased by 11.2 percent to Rs 3,989 crore from Rs 3,587.8 crore and in constant currency, revenue growth was 14 percent.
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