20 Nifty Companies Missed The Mark In The Second Quarter

India’s top companies witnessed a pickup in demand in the second quarter, which aided their topline, but the uptick did not translate into bottomline growth.

The aggregate revenue of all NSE Nifty 50 companies rose 4.3 percent in the July to September quarter, while the net profit fell 9.5 percent. Lower input costs aided earnings before interest, tax, depreciation and amortisation (EBITDA), which rose 6.6 percent in the second quarter. While financials continued to bear the brunt, the picture was no different for other Nifty companies. Ex-financials, net profit fell by an average 9.9 percent in the second quarter, while revenue and EBITDA growth also declined almost as much.

Thirty of the 50 companies on the index either met or beat estimates, while 20 missed the mark.

The Performers

Bosch Ltd. beat expectations by a mile, with profit surpassing analyst estimates by 88 percent, driven by a one-time gain of Rs 358 crore from the sale of a business vertical. Sun Pharmaceutical Industries Ltd. beat estimates by 38 percent. Bank of Baroda's net profit jumped 343 percent compared to the same quarter last year, partly on account of lower provisioning for bad loans.

The Laggards
Tata Steel Ltd. was the biggest disappointment in the second quarter. The company reported a loss of Rs 49 crore when analysts had penciled in a profit. Axis Bank Ltd. and Idea Cellular Ltd. also underperformed, with net profit falling 83 percent and 88 percent respectively.

1. Metals And Mining: A Chequered Q2

Of the three metal and mining companies on the Nifty, only Hindalco Industries Ltd. managed to impress in the second quarter. The metal major reported an almost fourfold increase in profit, aided by lower costs and higher production of aluminium. EBITDA rose nearly two times to Rs 1,156 crore, while revenue remained flat at Rs 9,458 crore.

There was no such luck for Coal India Ltd. which saw its net profit plunge 77 percent. The employee costs for the country’s largest mining company rose 14.6 percent, and e-auction realisations fell 25 percent.

Tata Steel posted a net loss for the fourth straight quarter, in a performance distorted by one-offs. The Mumbai-headquartered company registered Rs 123 crore profit from the sale of discontinued operations in Europe and booked an exceptional expense of Rs 59.3 crore. EBITDA rose 67 percent year-on-year to Rs 2,970 crore while the margin expanded 430 basis points to 10.8 percent.

2. Oil And Gas: Only BPCL Misses The Mark

It was a tepid second quarter for oil and gas companies, something that had been anticipated by analysts. Revenue rose 3 percent on an average while EBITDA and net profit declined 9 percent and 5 percent on a sequential basis, respectively. Of the four oil and gas companies on the Nifty, three managed to beat profit estimates. ONGC Ltd., Reliance Industries Ltd. and GAIL (India) Ltd. surpassed estimates by 2-15 percent, while Bharat Petroleum Corporation Ltd.’s net profit came in 17 percent below estimates.

India’s biggest energy explorer ONGC surprised the street with a profit growth of 15 percent higher than analysts estimates. EBITDA margins expanded by 207 basis points following cost control measures initiated in the first quarter.

Reliance Industries beat analyst estimates for the fifth straight quarter. Net profit stood at Rs 7,704 crore led by a robust petrochemical business. Revenue beat analyst estimates for the first time in eleven quarters.

GAIL, the country’s largest state-owned natural gas distributor, saw its net profit fall 30 percent to Rs 925 crore quarter-on-quarter, but was marginally above analyst estimates. Profit in the June-ended quarter was boosted by a one-time gain of Rs 489 crore after it sold a stake in Mahanagar Gas Ltd. The net profit figure was 9 percent higher, even after excluding this one-time boost.

Government-owned BPCL reported a sequentially weak quarter with a 50 percent fall in net profit, 65 percent fall in EBITDA and 49 percent fall in gross refining margins. Its gross refining margin of $3.1 per barrel was also $2 per barrel lower than the Singapore refining margin.

3. Telecom: Lull Before The Storm?

In what was a seasonally weak quarter, revenue of telecom companies rose 5 percent on an average while net profit declined 20 percent. Earnings before interest, tax, depreciation and amortisation rose steadily at 12 percent for the September ended quarter.

Bharti Airtel Ltd., India’s largest telecom operator, surprised the street, beating the net profit estimate by 19 percent. Idea Cellular Ltd. disappointed with a bottomline which was 50 percent below estimates.

Bharti Infratel Ltd., also beat street expectations by 9 percent on the back of mark-to-market gains on investments. Revenue grew on the back of higher energy reimbursements while EBITDA rose 16 percent on a year-on-year basis due to higher energy spread.

In the second quarter, Bharti Airtel saw its blended average revenue per user (ARPU) decline to Rs 188 – the lowest since quarter ended December 2012. Idea Cellular saw its ARPU decline to Rs 173 – lowest since December 2014.

The second quarter earnings would have only marginally reflected the impact of Reliance Jio’s entry, which started commercial operations on September 5.

4. Pharma: Some Hits, Some Misses

The trend was mixed for the pharmaceutical sector with three out of the five companies on the index missing analyst estimates.

While Sun Pharma and Lupin Ltd. reported strong bottomline growth driven by exclusive opportunities in the U.S., Cipla Ltd. and Dr. Reddy’s Laboratories Ltd. reported a year-on-year de-growth. Overall, the net profit of the five Nifty pharma companies grew by 29 percent mainly driven by Sun Pharma and Aurobindo Pharma Ltd. Revenue rose 12.6 percent year-on-year as domestic sales bounced back after a pick-up in India sales.

Companies continued to witness pricing pressure and price erosion in the U.S. market while revenue from emerging markets saw some respite in non-U.S. dollar currencies. Revenue for Lupin (Glumetza opportunity) and Sun Pharma (Gleevec) grew more than 20 percent mainly due to limited competition in the U.S. Dr Reddy’s Laboratories’ negative growth was primarily on account of lower contribution from North America and loss of sales in Venezuela.

Healthy U.S. sales and forex gains aided Aurobindo Pharma’s Q2 earnings. The recently acquired Actavis business in Europe aided the bottomline.

5. Banking: Role Reversal

The clean-up act continued for government-owned and specific private banks in the quarter which led the aggregate net profit to drop 9.4 percent compared to last year. Combined pre-provisioning or operating profit grew 31 percent driven by strong treasury gains, which was in turn led by a 63-basis-point drop in government bond yields during the quarter. Aggregate net interest income grew a modest 8.4 percent from last year on account of muted loan book growth. Yes Bank and IndusInd Bank outperformed with 38 percent and 26 percent NII growth respectively whereas Bank of Baroda saw a decline of 14.6 percent due to conscious run-down of its loan book.

On the asset quality front, bad loans continued to remain at elevated levels, though the pace of increase showed some signs of ebbing. In a trend reversal, the rate of growth of gross non-performing assets in government-owned banks slowed while it rose sharply for private sector banks, quarter-on-quarter.

Axis Bank’s 83 percent drop in its second quarter earnings came on the back of a surge in bad loans forcing the bank to set aside more funds for provisioning. The worst may not be over with loans worth nearly Rs 13,800 crore still classified under the bank’s “watch list” for stressed assets. The private lender’s net profit of Rs 319 crore in the quarter was the lowest quarterly profit since the third quarter of financial year 2008.

ICICI Bank Ltd. reported its highest proportion of bad loans in at least a decade, even as the lender turned in a strong profit number aided by a one-time gain from the initial public offering of its life insurance unit.

HDFC Bank Ltd. and IndusInd Bank Ltd. continued with their healthy growth momentum and robust asset quality numbers, while State Bank of India Ltd. saw its quarterly profit drop for the fourth straight quarter, but managed to meet street estimates. The bank’s loan book grew 7.2 percent, the slowest in five quarters, and was significantly below analyst estimates of 11-12 percent. The management anticipates fresh slippages of another Rs 5,000-7,000 crore from its Rs 25,951 crore watch list.

Government-owned Bank of Baroda’s profit missed estimates despite a three-fold rise. Higher provision coverage ratio and 6-month-high operating profits were the key positives.

The only bank that stood out in terms of confidence on asset quality was Yes Bank. The key takeaway from the lender for the quarter was its downward revision in credit cost guidance for the full financial year to below 60 basis points from 50-70 basis points earlier.

6. Auto: Bajaj Misses The Bus

Auto and auto ancillary companies registered an aggregate revenue growth of 12 percent on the back of pick-up in volumes spurred by normal monsoons.

Maruti Suzuki Ltd. posted total income growth of 29 percent and continued to dominate the passenger vehicles space. An expansion in margins resulted in net profit growing 60 percent year-on-year. Tata Motors Ltd. registered a 7 percent growth in consolidated total income, but continued to face pressure in the domestic market. As in the previous quarters, it was left to Jaguar Land Rover to provide a major support to keep the revenue growth afloat. Tata Motors posted a net profit of Rs 848 crores against a loss of Rs 1,740 crores during the period last year.

Mahindra and Mahindra’s 16 percent revenue growth was supported by an increase in sale of tractors which also resulted in a margins expansion of 60 basis points to 10.9 percent. Traditionally, M&M’s tractor business has commanded a higher margin, compared to their utility vehicles vertical.

Royal Enfield remained Eicher Motors Ltd.’s chief growth driver leading the company to post a 35 percent growth in revenue and 45 percent growth in net profit year-on-year. A pick up in volume for Hero Motocorp Ltd. was evident in its 15 percent total income growth and 28 percent growth in profit. For Bajaj Auto Ltd. revenue remained flat due to weakness in volumes and margins contracted to 20 percent from 21 percent last year.

7. Capital Goods: Fairly Strong Quarter

Revenue numbers for the capital goods sector were hit by slower domestic execution. However, a one-time income proved to be a saving grace for most of these companies.

Sale of general insurance business lifted Larsen & Toubro Ltd.’s second quarter profit to Rs 1,434.6 crore from Rs 778.4 crore in the corresponding quarter of the previous financial year. Revenue missed the Bloomberg consensus estimate by 1.5 percent. Nevertheless, the engineering major maintained its revenue growth guidance at 12-15 percent for financial year 2016-17 and its order inflow guidance at 15 percent.

BHEL beat estimates on all fronts but the order book emerged as a pain point. The company’s order book fell for the second consecutive quarter to Rs 1,03,300 crore from Rs 1,10,000 crore in the quarter ended March 2016.

8. FMCG: Asian Paints Comes To The Rescue

The second quarter of this financial year remained subdued for Nifty 50’s fast moving consumer goods companies Hindustan Unilever Ltd. and ITC Ltd. as well as paints giant Asian Paints Ltd. The three companies posted a revenue growth of 6 percent and nearly 12 percent profit growth year-on-year on an aggregate basis. Subdued volumes growth for HUL and ITC was partially compensated by steady double digit volumes growth for Asian Paints.

HUL reported growth of 2 percent in revenue despite a drop of 1 percent in overall volumes. Margins expanded by 60 basis points to 16.6 percent owing to raw material cost advantages and led to profit growth of 12 percent year-on-year. ITC’s 8 percent top-line growth was led by improving cigarettes volumes with its consolidated volumes remaining steady at 27 percent. Asian Paints saw a pick up in volumes on back of festive sales and normal monsoons which resulted in steady 10 percent revenue growth and net profit seeing 18 percent growth compared to last year.

9. Information Technology: A Subdued Quarter

Managements of India’s largest Information Technology (I.T.) companies had raised concerns of subdued client spending in markets abroad and as a result, expectations from several of these I.T. giants were scaled back. On aggregate, the five I.T. companies on the Nifty 50 index posted a 1 percent top-line growth and 1.8 percent growth in net profit quarter-on-quarter.

Tata Consultancy Services Ltd. (TCS), the country’s largest I.T. services provider recorded flat revenues on account of weak volumes growth of 1.3 percent. Net profit grew 4 percent sequentially owing to 90 basis point expansion in EBIT margins ahead of consensus expectations. Infosys’ numbers for the second quarter were only slightly better and while it recorded 3 percent growth in total income and 5 percent increase in net profit sequentially, Infosys scaled down its full year guidance to 7.5 to 8.5 percent from over 10.5 percent earlier in dollar terms.

It was another quiet quarter for Wipro posting 1 percent growth in total income and profits each with EBIT margins remaining at 17 percent. Tech Mahindra showed the highest growth of 4 percent in revenues among the Nifty’s I.T. companies but also registered a decline in net profit by 20 percent. For I.T. hardware major HCL Technologies, total income and net profit declined by 2 percent sequentially.

10. Cement: More Misses Than Hits

It was a subdued quarter for most cement companies as volume growth remained weak due to heavy monsoon in key markets amidst subdued demand. Of the three Nifty companies, only UltraTech Cement managed to put up stellar show. Good monsoons dampened cement offtake for the country’s largest cement major but other income ensured earnings beat Bloomberg consensus estimates.

A similar story played out for Ambuja Cement, where other income aided the profitability. However, operational performance and revenue fell short of consensus estimates.

ACC’s earnings disappointed as the company missed analyst estimates on all fronts. Profit declined due to poor operating performance and higher interest costs.

Price hikes effected in the first quarter were largely sustained in the July-September quarter, with average prices rising 1 percent, according to a report from IDFC Securities.

11. Power: Surprisingly Positive Show

The power sector surprised positively on the topline with sales growing 8 percent year-on-year largely aided by a strong show from Power Grid Corporation of India Ltd. Sharp increase in the transmission business revenue aided the company’s topline.

Overall bottomline performance of three power companies on the Nifty also recorded an 8 percent year-on-year growth, with major gains coming in from Tata Power. The company’s net profit surged to Rs 336 crore for quarter-ended September against a loss of Rs 95.87 crore during the corresponding quarter last year.

Bottomline performance of all the Nifty’s power companies surpassed analysts’ estimates polled by Bloomberg. Nevertheless, beat by a huge margin was delivered by NTPC despite the 17.9 percent drop it reported year on year.

The fall can be attributed to higher tax expenses and finance cost. However, Tata Power’s operational numbers disappointed the street. A sharp rise in other expenses took a toll on its performance at the operating level. Company’s EBITDA fell 27 percent to Rs 1,461.60 crore, compared to Rs 2,008.04 crore year-on-year.