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Business News/ Companies / Company-results/  Fourth quarter results paint a grim picture
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Fourth quarter results paint a grim picture

Indian companies are on track for their worst earnings season in more than two years on weak demand for goods and services

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Photo: Mint

Mumbai: Indian companies are on track for their worst earnings season in more than two years on weak demand for goods and services, adding to reasons for investors’ waning enthusiasm for local stocks.

Aggregate net profit of 101 companies that have announced their March quarter earnings fell 9.23%, their worst performance since at least the quarter ended December 2012, according to a Mint analysis. Companies for which comparable data was not available for at least 10 quarters were excluded from the analysis.

Net sales dropped 14.12% in the three months ended 31 March from a year earlier, again their worst show in 10 quarters, the analysis showed.

“Earnings so far have been disappointing, more particularly in the mid-caps and IT (information technology) space. Most companies have delivered earnings that are either in line or below expectations," said Hitesh Agrawal, head of research, Reliance Securities Ltd. There are only very few cases where a company has positively surprised on the earnings front, he added.

Indian companies have disappointed investors with quarterly profits that are likely to miss analysts’ estimates for the fourth straight quarter, halting a stocks rally that started early last year on expectations that then prime ministerial candidate Narendra Modi, perceived as business-friendly, will win the May 2014 national election and revive economic growth.

Prime Minister Modi’s efforts to boost economic growth by effecting reforms in labour laws, increasing spending on infrastructure and clearing projects that are stuck because of environmental and land-related problems have yielded little in terms of reviving corporate profitability, even though a new way of calculating gross domestic product showed that the nation’s economic growth had outpaced China’s in the December quarter.

In February, the government said the economy grew 7.5% in the three months ended 31 December based on the new method introduced by the statistics department. The new numbers have been met with scepticism by economists and investors.

Out of the 10 companies belonging to the National Stock Exchange’s 50-member Nifty index that have detailed their earnings, seven have missed analysts’ estimates, while only three have managed to beat the consensus earnings estimates, according to data compiled by Bloomberg.

Ahead of the earnings announcements, Edelweiss Financial Services Ltd had estimated profit after tax and sales of the 30 members that constitute the BSE Sensex to decline by around 7% each from a year earlier, while Kotak Institutional Equities had expected profit to rise by 0.1% and sales to grow by 0.2% for these companies.

“The results have turned out to be worse than what was expected. I see consistent misses in the IT space," said Dhananjay Sinha, head of research at Emkay Global Financial Services Ltd. “We will have to see how results of FMCG (fast-moving consumer goods) companies, capital goods pan out. We need to see if demand has picked up or order inflow is getting any better."

Software services disappointed investors the most with their March quarter earnings.

Tata Consultancy Services Ltd (TCS), the country’s largest software services company, missed analysts’ revenue estimates for the third straight quarter in the three months ended 31 March because of unfavourable currency swings and weaker demand for software services from clients in the US and the UK. TCS’s fourth-quarter revenue rose 12.4% from a year ago to 24,220 crore.

Infosys Ltd reported tepid fourth-quarter financial results, missing analyst expectations. Bengaluru-based Infosys forecast revenue to grow between 10% and 12% in constant currency terms in the coming 12 months, better than many experts had expected.

Smaller rival Wipro Ltd continued to disappoint, with both its March quarter revenue as well as its forecast for the June quarter missing analysts’ estimates. The company reported sequential revenue growth of 1.2% in constant currency terms, about 100 basis points below consensus estimates. Its forecast for the June quarter puts revenue growth between minus 0.5% (essentially a decline) and 1%, far lower than the 0.8-2.8% growth most analysts were expecting.

A basis point is one-hundredth of a percentage point.

Cement maker ACC Ltd reported a 41% drop in net profit for the quarter ended 31 March because of weak demand and a tax expense of 78 crore. Sales dropped 3% to 2,885.44 crore.

Cairn India Ltd, the oil and gas firm of UK-based billionaire Anil Agarwal’s Vedanta Resources Plc, posted a consolidated net quarterly loss, the first time in seven years.

Reliance Industries Ltd (RIL) bucked the trend and posted its highest quarterly profit in seven years as record earnings from its mainstay refinery operations countered weak petrochemical margins and lower income from its exploration and production business. RIL’s stand-alone net profit rose 10.9% to 6,243 crore in the March quarter.

Private banks also provided some respite.

Yes Bank Ltd’s profit in the quarter rose 28% to 551 crore, riding on robust demand for loans from small businesses and higher fee income.

HDFC Bank Ltd’s fourth-quarter profit rose 21% on demand for loans from individuals as well as higher income from fees and commissions, but still fell short of analysts’ expectations.

Earnings growth revival may take longer than estimated earlier, say analysts.

“Even on a low expectation base, the companies have not been able to match up. However, this is no way to be construed that this is the India story does not exist. It just means that the recovery is just delayed," said Agrawal of Reliance Securities.

Ashwin Ramarathinam contributed to this story.

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Published: 27 Apr 2015, 12:29 AM IST
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