Q2 Nifty Earnings Review: A Quarter Of Rebound Marked By Commodity Squeeze

The aggregate net profit of index constituents rose 23.3% sequentially, the fastest pace since the quarter ended September 2020, according to Bloomberg data.

The aggregate operating profit of 39 companies—excluding banks, financials and insurance companies—rose at 9.8%. The pace of growth was impacted by commodity inflation as not all companies were able to pass on rising input costs to customers despite improved domestic demand.

Most Commodity Prices Rise

Prices of oil, natural gas, copper, zinc and other key commodities surged over 6.4% between July 1 and Sept. 30, according to the Bloomberg Commodity Index. While prices of Brent crude, aluminium, zinc, tin and steel rose, those of iron ore, copper and lead fell.

Of the 44 firms for which Bloomberg compiled forecasts, as many as 17 companies surpassed estimates. While 13 reported numbers in line with estimates, 14 missed them.

Energy and pharmaceutical sectors led India Inc.’s profitability growth in the second quarter.

Here’s How Each Sector Fared

Energy

Reliance Industries Ltd., Indian Oil Corp., and Bharat Petroleum Corp. reported improved earnings on the back of better refining margins, rising product spreads and inventory gains amid higher oil prices. Oil & Natural Gas Corp.’s performance was supported by higher oil realisation, falling expenses and a jump in other income.

Pharmaceuticals

Dr. Reddy’s Laboratories Ltd. and Sun Pharmaceutical Industries Ltd. led the sector’s growth. Higher sales in India, the U.S. and other emerging markets aided Dr. Reddy’s Labs, while Sun Pharma’s overall growth was driven by improved demand for non-Covid-19 therapies, anti-infectives, and cough and cold medicines, KR Choksey said in a report.

Cipla Ltd.’s net profit fell amid decline in its India business segment, raw input inflation and interest expenses.

Metals

The net profit of Tata Steel Ltd. and JSW Steel Ltd. grew in double digits in the quarter under review aided by higher steel prices and lower iron ore prices. Steel bar prices rose 11% whereas iron ore prices fell over 30% in the second quarter, according to Bloomberg data.

Hindalco Industries Ltd.’s net profit rose 22% because of improved sales volumes of copper and aluminium.

Financial Sector (Banks And Insurers)

Profit growth in the sector was led by Kotak Mahindra Bank Ltd., Bajaj Finance Ltd. and Axis Bank Ltd. That was aided by improved asset quality, lower provisions and rise in net interest income.

“Better-than-expected quality of assets for banks as well as relatively robust top line growth for key financial services players boosted earnings beat within financials,” ICICI Direct said in a report.

Automobiles

Growth in the sector was led by Mahindra & Mahindra Ltd., Hero MotoCorp Ltd. and Bajaj Auto Ltd.

Momentum in its auto business, cost cuts and higher other income supported Mahindra & Mahindra’s earnings. A better product mix, higher revenue from spare-parts and improving exports aided Hero MotoCorp's performance. Bajaj Auto’s earnings was boosted by growth in its two-wheeler exports and commercial vehicle sales.

Information Technology

Infosys Ltd. and Wipro Ltd. reported adjusted EPS higher than estimates. Their performance was supported by a robust demand environment and accelerated IT spending. On the other hand, Tata Consultancy Services Ltd.’s revenue growth was impacted amid closure of contracts in its life sciences segment.

The sector faced headwinds in the form of wage hikes and higher hiring costs to counter attrition.

Cement

Net profit of Shree Cement Ltd. and UltraTech Cement Ltd. fell sequentially amid lower volumes, weak realisations and rising raw material and operational costs.

FMCG

Britannia Industries Ltd., Tata Consumer Products Ltd., Nestle India Ltd. and Hindustan Unilever Ltd. reported a sequential growth in revenue. While demand recovered in urban markets following increased mobility and expanding vaccination coverage, it moderated in rural areas, according to an Axis Securities report. Also, elevated raw material costs—including for packaging materials, palm oil and crude oil—weighed on margins.

Telecom

The sector’s earnings were supported by an increase in minimum recharge plans, higher recharge frequency post the second Covid-19 wave and withdrawal of free talktime benefits. Average revenue per user rose for Bharti Airtel Ltd. and Reliance Jio Infocomm Ltd. by 4.79% and 3.7%, respectively. Bharti Airtel’s customer base rose in the second quarter, but Reliance Jio’s fell.