September Results Losing Steam?
11/22/2010 2:18 PM Monday
There is an interesting common factor between the stock market and India Inc. results. Though there are 1.73 crore demat account holders in India, active investors are a little over 2 lakh and they generate 90 per cent of the total volumes. Similarly, India Inc. has a total of 6,700 listed companies (BSE NSE combined) but only a handful of frontrunners that have the capability to skew corporate results either way. For example, there are only 200 Group A companies, but they account for 84 per cent of the total market capitalisation, 46 per cent of the total average daily turnover, but more importantly they account for 71 per cent and 85 per cent of India Inc sales and profits respectively. Thus, though the overall results are important, what is more significant is how the frontrunners have fared as it gives a clear snapshot of the quality of earnings and its impact on the sustain-ability of the broader market.
As the corporate report cards for September were pouring in, the Sensex continued its surge ahead and closed above the 21,000 level for the first time in its history. This came at a time when investor expectations were already high, post the June quarter results where the bottomline grew by more than 15 per cent. Considering that we are almost at the fag end of the results season, it is time to take stock of things and under-stand how the numbers have panned out for India Inc.
Of the 3,077 results that we have with us so far, India Inc. seems to have surprised everyone yet again by posting a stellar performance of 20 per cent topline and a massive 46 per cent bottomline growth on a year on year basis. Backed by such a thrilling accomplishment, it is no wonder that the September results have acted as a major trigger for the Sensex to scale new highs. Plus, these gross numbers certainly look better than the June quarter. There is an old adage that says, ‘Seeing is believing’ and it is so true here. Nonetheless, a few of the numbers in this case feel too good to be true and even after seeing them on paper, some may still find it unbelievable. Besides, one must also note that even a single factor is enough to skew the overall results. Hence, as a general rule we always adjust the aberrations i.e., refinery and extraordinary items to get a clear picture.
In fact, if readers could recollect the special report on results in DSIJ’s previous issue, we have seen the impact of Piramal Healthcare’s one time gain to the tune of Rs 16,209 crore could do to the results. Thus to end the suspense, we adjusted the refinery and extraordinary items from the gross India Inc. numbers. To our surprise, we found that despite the number of companies posting their results rising sharply, the bottomline growth remained stunted at 6 per cent while the topline continued to show its inherent strength with a 19 per cent increase. Looking at the bottomline results, it is clear that this is indeed a below expectation result from India Inc. However, Navneet Munot, CIO, SBI MF feels, “The September quarter results are broadly in line with the expectations but there is no secular trend and there is lot of divergence seen across the sectors in these results.” Kishor Ostwal Managing Director CNI Research too feels, “We could not have expected a much better growth than this. There is no problem of consumption, the demand is not slowing down, but there are certain sectors where one feels the pressure. But growth cycle is going on, demand cycle is picking up and the stock market is responding accordingly.” But what is important now is to understand the reasons behind this underperformance.
A dip in the data showed that factors such as rising input costs, higher depreciation charges and tax provisions led to the squeezing of profits for India Inc. Raw material and power and fuel costs have gone up by 15 per cent and 13 per cent respectively. It should be noted that the prices of commodities such as copper, steel, iron ore, coal and crude have all seen an uptrend during the quarter. Kishor Ostwal, Managing Director, CNI Research explains, “We have seen commodity prices rising substantially this quarter leading to clear impact on the bottomline. But with commodity prices falling steeply this month, we will see the profitability going up the next quarter.”
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