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Mumbai: Indian companies grew at their fastest pace in six quarters in the October-December period, pointing to improved operational efficiency as they learned to work with tighter budgets and cope with the prolonged economic slowdown.

Any significant turnaround, though, is unlikely before the next government is formed later this year, analysts cautioned.

Net profit for these companies in the December quarter increased 18.9% from a year before, while net revenue grew at a more modest 7%, showed a Mint analysis of 299 companies that are part of the BSE 500 and for which comparable data was available for the previous 15 quarters.

On both the metrics, the pace of growth was the fastest since the end of the September 2012 quarter.

Banks, financial institutions, and software and energy companies were excluded from the review as they follow a different earnings model than the other companies on this list.

“Some positive signs we saw in the September quarter earnings seem to be carried forward. Cost rationalization is reaping benefits. Learning and benefits from cost-cutting lasts much longer and can lead to accelerated margin expansion in an up-cycle," said Ambareesh Baliga, managing partner of Edelweiss Global Wealth, the wealth management arm of Edelweiss Financial Services Ltd.

“We seem to have bottomed out as far as the economy is concerned," he said, adding that while there is no denying that the positive signs and optimism seen in the September quarter are continuing, it is too early to call the results a turnaround. “A lot depends on the election results and how the new government steers the economy," Baliga said.

The average operating profit margin at 12.4% was the best in six quarters, and the average net profit margin at 9.5% was the best in four quarters. The raw material-net sales ratio dipped to 36.2% from 36.7% in the previous quarter, suggesting that input cost pressures had eased. The employee expenses-net sales ratio dropped to 7.2% from 7.5%.

“There has been a significant contribution from pharma companies, and also large-size companies in IT (information technology) have posted decent set of numbers. FMCG (fast-moving consumer good) has benefited from muted volume growth and increase in prices has reflected," said Deven Choksey, managing director and chief executive of KR Choksey Shares and Securities Pvt. Ltd. “The (overall) positive trend has continued and will continue. We have stabilized on the base, but are waiting to ride," said Choksey.

Among the stand-out performers this quarter was Sun Pharmaceutical Industries Ltd, which sharply raised its revenue forecast for the financial year ending March after posting a 74% jump in net profit for the December quarter on strong overseas sales.

Smaller peer Aurobindo Pharma Ltd posted a fourfold jump in consolidated net profit on the back of higher sales due to product launches and growth in its formulation business in the US and Europe. Rival Cipla Ltd bucked the positive trend in pharma earnings trend and posted a 17% drop in net profit mainly on the back of increased material costs and foreign exchange losses.

Auto makers mostly posted earnings that surpassed analysts’ expectations.

Tata Motors Ltd smashed street expectations after its profit almost tripled, as its UK unit JaguarLand Rover Automotive Plc reported robust sales of luxury cars and premium sport utility vehicles, balancing out another dismal quarter for its domestic operations.

Mahindra and Mahindra Ltd, India’s largest maker of utility vehicles, posted an 11.7% increase in net profit as demand for tractors rose and it cut costs, countering a decline in passenger vehicle sales. Maruti Suzuki India Ltd also reported a 35.9% year-on-year jump in net profit.

On the other hand, there seemed to be little to cheer about for metal producers. While Tata Steel Ltd, India’s largest maker of the alloy by capacity, swung to a quarterly profit of 503.24 crore compared with a loss a year before, as demand increased across its largest market of Europe, the earnings lagged estimates as domestic operations remained weak.

Cement companies continued their dour performance in the quarter, as sluggish demand for the commodity took a toll on sales volumes. ACC Ltd, the country’s second largest cement maker, warned demand was unlikely to improve soon, after it reported quarterly revenue that remained unchanged from a year ago. Rival Ambuja Cements Ltd said net profit on a stand-alone basis for the three months ended 31 December dropped 22% to 165.97 crore.

For banks, the disparity between the earnings of state-owned lenders and private banks continued, with the former being weighed by the burden of bad loans. The country’s biggest lender, State Bank of India, disappointed the Street with a 34% drop in third-quarter profit as mounting bad loans amid slower economic growth took a toll on the bank.

Private banks put up a decent show. ICICI Bank Ltd, the country’s largest private lender, reported a 12.5% increase in quarterly stand-alone net profit, riding on demand for loans from individuals and an increase in fee and treasury incomes. Rival HDFC Bank Ltd’s third-quarter profit rose 25%, in line with analyst estimates, as it earned higher income on loans and kept a tight check on costs and bad loans.

Software firms, too, largely beat analysts’ expectations for the December quarter, seasonally a weak period for the sector.

Tata Consultancy Services Ltd, the country’s largest software services provider, beat analysts’ estimates with a 50.3% rise in third-quarter profit as it benefited from growth in most of its business segments. HCL Technologies Ltd and Infosys Ltd also reported better-than-expected quarterly earnings, reflecting improved global demand and the advantage derived from a weaker currency.

Reliance Industries Ltd’s (RIL) better-than-expected performance in the December quarter is seen by analysts as an indication that the tide is turning for the conglomerate. The company beat Street expectations with a net profit of 5,511 crore, 0.2% higher year-on-year and 3.65% ahead of a Bloomberg consensus of the firm’s earnings estimates put out by various brokerages. RIL reported a 10.5% year-on-year rise in revenue in the same period at 1.06 trillion.

While growth in overall profits and sales showed a steady improvement, domestic demand remains a worry as the economy remains weak, say analysts. Many of them, however, do believe the worst in terms of earnings is over.

Asia’s third largest economy is expected to grow at below 5% for the second year in a row, with the government forecasting growth of 4.9% for the fiscal year ending 31 March, against 4.5% last year.

“It is not time to rejoice as yet," said Vaibhav Sanghavi, director of Ambit Investment Advisors Pvt. Ltd. “For the companies which have reported stellar numbers, the gains have arrived from their overseas operations. The NPA (non-performing assets) and restructured loan numbers are not encouraging. Things may stay subdued until we have election results coming. The health of domestic economy is not promising as yet."

Ashwin Ramarathinam and Ravindra Sonavane contributed to this story.

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