Mumbai: Analyst estimates of net profits and sales of companies and the actual numbers do not always match. If the firms disappoint the street, investors rush to sell stocks, but when companies do better than what analysts expected, the stock prices rise.
This time around, for the first quarter to 30 June, 23 out of the 30 firms that constitute the Bombay Stock Exchange’s benchmark equity index, Sensex, have beaten analysts’ expectations on net profits. And this possibly explains the 13.9% rise of Sensex between 10 July, when Infosys Technologies Ltd announced its first quarter results, and 31 July, the end of the earnings season.
Four of them have beaten the street expectations by a wide margin. For instance, Tata Motors Ltd, India’s largest auto maker by sales that owns Jaguar and Land Rover, reported a net profit of Rs514 crore between April and June, against Rs99.4 crore, the median estimate of analysts in a survey by Bloomberg. Lower steel prices and a higher price tag on new car models helped Tata Motors post such a high net profit.
India’s biggest engineering firm Larsen and Toubro Ltd’s (L&T) net profit was 179% higher than a Bloomberg analysts’ estimate of Rs572 crore. L&T’s net profit, however, includes a one-time income of Rs1,020 crore, earned from selling 11.49% stake in UltraTech Cement Ltd. Jaiprakash Associates Ltd and Grasim Industries Ltd have beaten street expectations by as much as 118%.
Seven firms that could not match analysts’ expectations are Housing Development Finance Corp. Ltd (HDFC), Bharat Heavy Electricals Ltd (Bhel), Reliance Industries Ltd (RIL), Hindustan Unilever Ltd (HUL), Tata Steel Ltd, DLF Ltd and Sun Pharmaceutical Industries Ltd. While Sun Pharma lagged 57% behind analysts’ estimate, HDFC missed it by a whisker—1%. Net profits of HUL, Tata Steel and DLF were way behind analyst estimates, while Bhel and RIL missed it by single digits.
Hindalco Industries Ltd and Tata Power Co. Ltd have beaten street expectations handsomely, by close to 100%. In this pack, net profits of Reliance Communications Ltd, Mahindra and Mahindra Ltd, Maruti Suzuki India Ltd, State Bank of India and Reliance Infrastructure Ltd have also beaten analysts’ estimates by between 38% and 22%.
Most sectors witnessed a considerable improvement in performance during the June quarter compared with the March quarter. But the improvement was largely on account of higher profit margins, which, in turn, were driven by lower commodity prices. Many companies cut other costs as well in order to safeguard their profits in the downturn. Revenues declined overall, pulled down by lower commodity prices, but also because there has been no material pick-up in volumes, except in a handful of sectors such as auto. Demand for capital goods continued to be sluggish, and this sector is facing pricing pressure as well. The improvement in consumer sentiment in the past few months isn’t really visible in the revenues of Indian companies in the June quarter.
Text by Mobis Philipose and Ashwin Ramarathinam
Graphics by Sandeep Bhatnagar/Mint