Q4 results of BSE companies indicate recovery, early trends show

More BSE companies have met or beat Q4 results estimates than those that missed, but analysts say it’s too early to call the trend a recovery


Graphic: Ahmed Raza Khan/Mint
Graphic: Ahmed Raza Khan/Mint

Mumbai: More companies beat or met quarterly earnings estimates than those that missed, an early review of results showed, but analysts say it is too early to conclude that an earnings recovery is on and an informed opinion can be formed after a more complete picture emerges.

A Mint analysis showed that 28 of 54 BSE 200 firms, 17 of 28 BSE 100 firms, and 11 of 16 Nifty companies, that have announced their earnings for the quarter ended 31 March have beat consensus earnings estimates, according to data compiled by Bloomberg.

“People had expected some spillover of adverse impact from demonetization in the March quarter. The intensity of the same has been quite less than expected,” said Gaurav Dua, head of research at Sharekhan by BNP Paribas.

March-quarter earnings reported so far indicate that firms have recovered from the government’s decision to invalidate 86% of the currency in circulation in November much faster than anticipated.

Dua pointed out that for the past six quarters, banks’ earnings have been hit by higher NPA (non-performing assets) provisioning, and the base therefore had become low.

“Banks and NBFCs (non-banking financial companies) as a pack, are showing a lower incremental increase in NPAs,” Dua said.

Fourteen of the 28 BSE 500 firms, nine of the 17 BSE 200 firms and six of the 11 Nifty companies that have beat or met Bloomberg’s consensus estimates, are banks and financial services companies.

HDFC Bank Ltd reported a higher-than-estimated fiscal fourth-quarter profit and stable asset quality, prompting investors in India’s most valuable bank to drive its shares to a record high. Rival Kotak Mahindra Bank Ltd reported a 40% rise in quarterly net profit for the quarter ended March, beating market estimates.

Meanwhile, mortgage lender Housing Development Finance Corp. Ltd (HDFC) reported a standalone profit of Rs2,044.20 crore for the March quarter, in line with analysts’ estimates.

However, it is too early to form an opinion, analysts say.

“I think the hits are all sector-specific. For example, cement companies surprised positively on the volume front. I would wait for entire earnings to pan out to draw an inference,” said Gautam Trivedi, chief executive of Religare Capital Markets Ltd.

Gautam Duggad, head of research at Motilal Oswal Financial Services Ltd, pointed out that banks and software companies have, as usual, the first ones to report corporate earnings. “As long as we have the earnings from a cross-section of firms, it is difficult to form an opinion. We always notice that earnings start on a good note, and then progressively deteriorate.”

Of the 51 firms in the coverage universe of Motilal Oswal Securities that have declared earnings, 20 have seen earnings downgrades of around 3%, while nine have seen earnings upgraded by around 3%, said Duggad.

“We need to remember that all the consumer-focused companies are yet to unveil earnings. So far, the management commentary of the companies that have announced earnings so far are not sounding very upbeat,” said Duggad.

The FY18 Sensex earnings per share estimates fell from its fiscal year 2017 high of Rs1,756.52 on 11 November to Rs1,688.37 on 17 February. Since then, it has recovered to Rs1,707.89 on 4 May.

Analysts were divided on whether the earnings downgrade cycle would end soon.

“If we have a combination of normalization of earnings of banks, and stable prices of commodities, better monsoon and low interest rates continuing for a few quarters, probably the earnings downgrades would be behind us,” said Dua.

“Apart from earnings downgrades after demonetization to early this year, earnings estimates have been largely stable,” said Dua, adding that an impact from the implementation of goods and services tax (GST) around 1 July, will be temporary in nature, where people would like to unwind their inventories.

“GST is a not a specific issue to corporate earnings, as it negatively impacts the unorganized sector more, as compared to organized sector,” said Dua.

Trivedi of Religare disagrees. “I don’t think it is the end of the downgrade cycle in earnings. There is at least one more quarter to go.”

“We need to remember GST is coming up in the next quarter, and nobody can predict with any close accuracy, the immediate impact of things. It is going to be a big event, for which there is no comparable (event) available to draw analogies,” added Trivedi.

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