Mumbai: The first set of June quarter earnings of Indian companies showed no sign of an immediate turnaround.

Sales growth declined for the third straight quarter amid weak demand and subdued industrial activity in Asia’s third largest economy.

Aggregate net sales fell 2.78% from a year ago, according to a Mint analysis of 275 BSE-listed companies. Net profit rose 9.12%, but was still slower than the profit growth in the March quarter. Only those companies for which comparable data for 14 quarters were available were considered for the study.

“Demand is still weak and it will take time to recover. We will see some significant recovery kicking in only in the second half of the financial year," said Deven Choksey, managing director and chief executive officer of KR Choksey Shares and Securities Pvt. Ltd.

Factory output growth slowed to 2.7% in May as production of consumer goods shrank after a momentary pickup in April, signalling rural demand remains fragile amid a weak monsoon.

To be sure, early-bird results do not always indicate the final numbers, and the trend may change as more companies declare earnings.

“The decline in commodity prices is supporting the profits, while demand continues to stay weak. It’s too early to comment as the cyclicals—PSU banks, metals companies and cap goods companies—are yet to report numbers. We need to watch how their earnings come out given rising credit risk within SMEs (small and medium enterprises), declining global commodity prices and limited execution improvement, respectively," said Nitin Bhasin, head of research at Ambit Capital.

Meanwhile, operating profit margins and net profit margins rose to 24.15% and 13.43%, respectively, their best since at least the quarter ended March 2013.

“Margins are the only respite for now. Fall in interest rates, lower crude oil prices and lag effect of commodity prices are helping them," said Choksey.

“The ongoing results season looks no different from the past few. Valuations remain nonchalantly high," Kotak Institutional Equities, an arm of Kotak Securities Ltd, said in a 21 July note.

“It now seems a tug-of-war between the market’s hopes of an economic recovery and India’s tight ‘textbook’ macro-economic approach. The latter is good for the medium term, but may hurt in the short term," Kotak analysts Sanjeev Prasad, Akhilesh Tilotia and Sunita Baldawa said in the note.

Kotak analysts said that, though the pace of earnings downgrades has slowed, they still fear more downgrades. The June quarter earnings season is off to a subdued start, they noted, adding the underlying trends of the past several quarters of high slippages in the restructured books of banks and weak volume growth of cement and consumer companies do not bode well for overall economic or earnings recovery.

“The ongoing deflation in global commodity and domestic real estate prices will further exacerbate the financial challenges of several companies," Kotak analysts added.

Hindustan Unilever Ltd, the country’s largest consumer packaged goods maker by sales, missed earnings expectations as rural sales growth slowed and deflationary trends in input costs impacted price-led growth. The company’s net profit grew a meagre 0.22% to 1,059.14 crore during April-June, against Bloomberg estimates of 1,114.3 crore.

Bajaj Auto Ltd’s net profit beat forecasts, rising 37% from a year ago on higher income from financial investments and as favourable currency movements. Net sales rose 7.2% from a year ago to 5,505.06 crore, but fell short of the Street view.

Energy giant Reliance Industries Ltd beat forecasts and reported a 4.4% rise in consolidated first quarter net profit, driven by the highest quarterly profit in more than seven years from its core business.

HDFC Bank Ltd, the second largest private sector bank by assets, posted a 21% rise in net profit, riding on strong growth in retail loans and fee income, despite higher provisions. The profit matched the median estimate of a Bloomberg survey.

Smaller rival IndusInd Bank Ltd posted a forecast-beating 25% rise in net profit because of a revival in demand for loans from large and medium-sized companies as well as loans for commercial vehicles.

Meanwhile, an improving US economy helped software services companies.

India’s largest software company Tata Consultancy Services Ltd (TCS) beat estimates as it generated more business from clients in the US and those from the banking and financial services industry. Dollar revenue rose 3.5% in the quarter ended 30 June from the preceding three months, but, more significantly, the Mumbai-based company said 12.5% of its quarterly revenue came from the lucrative digital space, which translates into about $2 billion annually, making it the highest among homegrown software companies.

India’s second largest information technology company, Infosys Ltd, reported strong first-quarter results due to a pickup in business across sectors, particularly from its US clients. Net profit rose 5% from a year ago to 3,030 crore, matching analysts’ estimates. The company retained its constant currency revenue growth forecast at 10-12% for the current fiscal year, but raised its growth guidance in dollar terms to 7.2-9.2% from 6.2-8.2%, as it believes it will benefit from currency movements.

However, Wipro Ltd’s performance, as in recent quarters, was underwhelming. Revenue growth of 1% (in dollar terms) over the previous quarter lagged that of bigger rivals TCS and Infosys, which reported 3.5% and 4.5% growth, respectively.

JSW Energy Ltd reported about a 15% fall in quarterly profit from a year earlier, missing analysts’ expectations, as power demand fell.

Weak demand continued to take a toll on cement companies.

The country’s largest cement maker, UltraTech Cement Ltd, reported a consolidated June quarter net profit of 591 crore, against 628 crore a year ago, due to higher freight and other expenses. The figures are not comparable with the previous corresponding period due to UltraTech’s acquisition of the Gujarat units of Jaypee Cement Corp. Ltd, which took effect on 12 June 2014.

ACC Ltd reported a 45% fall in its net profit for the quarter ended June due to subdued sales and higher expenses.

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