So far so good
The first 500 BSE-listed firms have reported promising growth figures in this earnings season
As the market looks out for direction from fourth quarter earnings, the first 500 BSE-listed firms have posted better earnings compared to the year-ago quarter. The companies have reported 10.55 per cent year-on-year revenue growth and 26.89 per cent profit after tax growth despite suffering the residue impact of demonetisation. The profit growth figure looks steep because of the low base effect.
A mid-way analysis of the earnings season, based on inputs from corporate data firm Capitaline, shows sales/revenue for the first 500 companies grew to Rs 5,66,453 crore during January-March 2017 against Rs 5,12,394 crore in the same period last year. Their profit after tax grew to Rs 61,871.06 crore from Rs 48,758 crore for the respective periods.
Operating profit, or earnings before interest, taxes, depreciation and amortisation (Ebitda) grew 8.66 per cent to Rs 1,97,007.84 crore from the year-ago quarter’s Rs 1,81,303 crore. Though earnings growth looks positive now, the trend may change significantly, as companies with bad sets of numbers usually delay their earnings reports in the last quarter, since they have more time, than the usual 45-day deadline, to announce their results because of the financial year ending and annual accounting.
The Q4 results of SBI, Colgate-Palmolive, JK Tyre, Kajaria Ceramics, Vedanta, Grasim, JK Paper, Tata Steel, Whirlpool, Hindustan Unilever, Bajaj Auto, CESC, Pidilite Industries, VIP Industries and Motherson Sumi, among others, are due this week.
"The next three weeks will be very important since a large set of results are slated to report. The market is very eagerly waiting to understand the trajectory of the earnings outlook for FY18. This is because the market is currently expecting 20 per cent earnings growth for FY18 compared to a muted FY17,” says Vinod Nair, head of research, Geojit Financial Services.
Public sector oil marketing companies (OMCs) are yet to announce their fourth quarter performance. Analysts expect a good set of numbers from them as crude prices hover below $60 a barrel.

An HDFC Securities report on the downstream oil sector said, “The last three years have been excellent for OMCs. Stock prices, which moved in a narrow range in 2004-14, have risen by three-four times during 2014-17. The fall in crude prices led to a complete change in the fortunes of the sector, driven by strong global gross refining margin (GRMs) due to robust demand, lower product prices and delay in new refineries.” Petchem margins are above their five-year average. Besides, higher profits in marketing, owing to strong volumes/margins, low oil subsidy, interest cost, which fell by 50-60 per cent in the last three years, and inventory gains will reflect in their earnings. These will help OMCs to report the highest-ever Ebitda and PAT in FY17, the report said.
“The OMC story will remain intact till crude is below $60/bbl,” HDFC Securities said.
Among the big earnings numbers announced so far, HCL Technologies reported a 27 per cent profit growth in Q4 to Rs 2,475 crore, showing stronger profit growth than larger rivals like TCS and Infosys. The smaller IT firms also have posted better results.
Manik Taneja and Ruchi Burde of Emkay Global Financial Services, in the their performance review of HCL Technologies, said, "HCL Tech’s overall operating performance and FY18 outlook appears better amongst the tier-I technology companies on a relative basis. We continue to prefer tier-II IT companies over tier-1 IT, in line with our sectoral thesis."
In the auto sector, the results of Hero MotoCorp, Eicher Motors and Force Motors were largely in line with market expectations.
“Hero Motocorp’s Q4FY17 Ebitda at Rs 957 crore, down 19.5 per cent YoY, came in below estimates, led by a poor model mix, higher raw material cost and discounts offered to clear the BS-III inventory. Profit after tax at Rs 720 crore, down 14 per cent YoY, was affected by a lower operating margin. The drop in the Q4 margin is a one-time impact, owing to the ban on BS-III vehicles. The situation should improve from Q1FY18, with price hikes in May 2017, a pick-up in demand owing to the marriage season and rural recovery,” HDFC Securities said.
Eicher Motors fourth quarter standalone revenue grew 22 per cent to Rs 1,884.4 crore YoY while its profit grew 8 per cent to Rs 411.6 crore. “Eicher Motors posted in-line results as the strong volume growth at Royal Enfield coupled with pricing power led to healthy double-digit topline and bottomline growth for the company,” said a report by Sharekhan.
“The company was able to maintain margins on a sequential basis despite commodity price increases, given the robust pricing power. Going ahead, the waiting period at classic brands of motorcycles and the strong brand positioning provide visibility of healthy double-digit earnings growth,” the Sharekhan report said.
The fourth quarter numbers have been mixed for the banking sector, as the results have been good for private sector banks and poor for some public sector banks. ICICI Bank reported a 10.3 per cent growth in net interest income to Rs 5,962 crore and its profit after tax soared 188.5 per cent to Rs 2,025 crore. In a review of ICICI Bank's fourth quarter results, HDFC Securities said, "The Q4 results were a pleasant surprise, with a sharp drop in net stressed assets, healthy domestic loan growth at 14 per cent led by retail loans, net interest margin improvement, controlled operational expenditure, sustained momentum in current accounts and savings account and in-line net earnings.”
SBI, Bank of Baroda and Bank of India are yet to disclose their numbers.

In a report on the banking sector, ICICI Securities said, “With asset quality woes taking a back seat as delinquencies trend lower in the Q4FY17 results declared to date, and upbeat growth guidance from managements, the focus now shifts to loan growth going ahead. Loan growth has remained muted at 12 per cent CAGR for FY11-FY17, with the lowest 5.1 per cent YoY growth in FY17.”
“In the last few years, PSU banks (with the exception of SBI) have steadily lost market share to private sector banks, which have stayed course on promising and delivering a strong balance sheet momentum,” ICICI Securities said.
While the loan growth outlook is positive for banks, it is already priced in. The Nifty Bank Index has given a 24 per cent return year-to-date, sharply above benchmark Nifty’s 14 per cent. This has been largely led by expectations of improved asset quality and anticipation of systemic resolution on large NPAs, GST implementation and a revival in loan growth.
The Bank Nifty’s outperformance, said ICICI Securities, has led to both PSU and private sector banks being priced higher than the past seven-year mean valuation.
The earnings reports have injected yet more optimism into a stock market that is on a bull run. "The earnings of the key companies have reported a good set of numbers, which indicates the Nifty will hold its upward trend," said Foram Parekh, research analyst, Bonanza Portfolio.