The corporate earnings picture is not so bad

A Moneylife analysis of 1,099 companies shows a lot of them have increased profits, helped by lower commodity prices even though sales growth has slowed down

The 1,099 companies in the Moneylife database clocked aggregate sales of Rs11,77,846 crore when compared to Rs10,39,595 crore recorded in the same quarter last year, or 13% higher on a y-o-y basis. Both operating profit and net profit grew 32% y-o-y and 68% y-o-y, on an absolute basis, to Rs1,76,911.5 crore and Rs1,07,255.4 crore respectively. Out of the 1,099 companies, nearly half of the companies reported net profit higher than last year despite even as roughly two-thirds of the companies saw their net sales increase on a year-on-year (y-o-y) basis. This shows that companies have been able to keep cost under control even as inflation continues to worry the Reserve Bank of India (RBI) and companies.

Furthermore, a more important measure is margins. On an overall basis, operating profit margins have expanded by more than two percentage points, y-o-y, to 15.02% while net profit margins have expanded by nearly three percentage points, y-o-y, to 9.11%. This is impressive and shows that topline is not all. This also shows that companies have exuded far more cost control than before in the face of slackening demand, mainly helped my lower commodity prices. Last year, operating profits declined by 10% (when compared to September 2010). This year, however, companies have managed to grow operating profit by 32%, a significant number. Considering that global situation is far more difficult today than last year, companies have managed to do well.

If you look at the aggregate net sales and profit figures, net sales have hardly increased (only by 13% y-o-y) while profit increased by 68% y-o-y. Sales have been subdued because of lack of demand. Higher interest rates, lack of liquidity due to a hawkish stance by the Reserve Bank of India (RBI) have forced consumers to cut down on spending. Net sales slowed down even on a y-o-y basis, by seven percentage points. As demand slows down, companies are forced to cut down on capital expenditure and spend only once demand picks up. This has kept operating profit up. This is one of the cornerstones of cost management. Some companies are waiting for the opportune moment to invest, especially that raw materials are now cheaper to produce items. During difficult times, it is the only controllable variable companies can do to keep profits stable keeping in mind shareholder interests. And in this realm, they have done well, considering that RBI has taken a hawkish stance and not resorted to monetary easing nor have their done any open market operations (OMO).

Whether the third quarter results will be good is in doubt as America prepares to tackle the fiscal cliff while there seems no end in sight to the Eurozone crisis. Several Bills are due to be passed in the parliament in the winter session of the parliament, including the landmark Foreign Direct Investment (FDI) in retail and FDI in aviation, which could be game changers and possibly stimulate the market, at least in the short-term. But all this is uncertain as political wrangling continues and this could affect companies’ decision making on investment matters. Companies are on wait and watch mode and striving for consistency in cost management.

You can check out our similar analysis we’d done on previous quarters below:


Q4FY12 -

Q3FY12 -



Anil Agashe

5 years ago

Nice to know this. But I have following observations:
1. The analysis means high interest rates are not hurting companies right?
2. Cost control is done only when things are bad?
3.Sales growth of 13% is good considering the situation.
4 How much sales growth has come from volume and how much from price increases?
5. This explains the increase in indirect tax collections.

BSE Sensex, Nifty still fighting the downtrend: Thursday Closing Report

Previous day’s low on the Nifty continues to be the crucial level to watch

The market, which was in the green for a major part of today’s session, pared part of its gains in late trade on profit booking. Yesterday we mentioned that a close above 5,640 on the Nifty may add strength to this weak upmove. Today although the index managed to cross this level it ended a bit lower. A strong close above 5,655 may bring more momentum to the uptrend, however, a previous day low on the Nifty continues to be the crucial level to watch. The National Stock Exchange (NSE) saw a volume 53.12 crore shares and an advance decline ratio of 749:677.

The Indian market opened on a positive note tracking the global markets which were in the green on hopes that European leaders are likely to reach a deal to release emergency funds to Greece. A report indicating a growth in China’s factory output in November also boosted investor sentiments across Asia.
Back home, the Nifty started off at 5,629, up 14 points over its previous close, and the Sensex resumed trade 51 points higher at 18,460. Buying interest in capital goods, banking, technology and PSU sectors pushed the indices higher in early trade.
However, the benchmarks were unable to sustain their early gains and began a gradual descent. Opposition to the government’s reforms on the first day of the Winter Session of Parliament saw the indices touching the day’s lows in noon trade. At the lows, the Nifty fell to 5,608 and the Sensex went back to 18,456.
A positive opening of the European indices as policymakers resume talks on the EU budget supported the domestic market in subsequent trade. The inability of the Trinamool Congress to muster sufficient numbers for a no-confidence motion against the UPA government also supported sentiments. 
The gains helped the benchmarks touch their intraday highs in the post-noon session. At the highs, the Nifty climbed to 5,643 and the Sensex went up to 18,568. But profit booking at the highs resulted in the market paring part of its gains in the last hour, albeit closing in the green.
The Nifty rose 13 points to settle at 5,628 and the Sensex finished the session at 18,517, up 57 points.
Among the broader indices, the BSE Mid-cap index closed 0.32% higher and the BSE Small-cap index gained 0.39%.
The top sectoral gainers were BSE Capital Goods (up 1.07%); BSE IT (up 0.85%); BSE TECk (up 0.80%); BSE Fast Moving Consumer Goods (up 0.62%) and BSE PSU (up 0.55%). The losers were BSE Oil & Gas (down 0.49%); BSE Consumer Durables (down 0.36%) and BSE Auto (down 0.24%).
Sixteen out of the 30 Sensex stocks closed in the positive. The main gainers were State Bank of India (up 1.9%); Larsen & Toubro (up 1.7%); Infosys (up 1.6%); Mahindra & Mahindra (up 1.2%) and ITC (up 1.2%) while key losers were Tata Motors (down 2.5%); ICICI Bank (down 1.0%); Sun Pharma (down 0.6%); Reliance Industries (down 0.5%) and Cipla (down 0.5%).
On the A Group, top two gainers on the BSE were—Hindustan Copper (up 11.3%) and Strides Arcolab (up 5.5%) while top losers were—Pantaloon Retail India (down 5.6%) and Max India (down 3.4%).
The top two B Group gainers on the BSE were—Metroglobal (up 2449.27%) and Rama Newsprint (up 20%) while SEL Manufacturing Company (down 19.52%) and Bisil Plast (down 12.50%), ended as top two losers.
Out of the 50 stocks listed on the Nifty, 27 stocks settled in the positive. The major gainers were Grasim Industries (up 2.3%); Larsen & Toubro (up 1.9%); SBI (up 1.8%); HCL Technologies (up 1.7%) and NTPC (up 1.7%). Tata Motors (down 2.8%); Siemens (down 2.1%); UltraTech Cement (down 1.8%); ICICI Bank (down 1.3%) and IDFC (down 1.2%) were the major losers today.
Markets in Asia, with the exception of the Shanghai Composite and the KLSE Composite, settled higher on the expansion in Chinese manufacturing sector in November, as revealed by a preliminary report from HSBC PMI.
The Hang Seng surged 1.0%; the Jakarta Composite advanced 0.43%; the Nikkei 225 jumped 1.56%; the Straits Times climbed 0.9%; the Seoul Composite gained 0.8% and the Taiwan Weighted gained 0.2%. Bucking the trend, the Shanghai Composite dropped 0.7% and the KLSE Composite lost 0.3%.
At the time of writing, the key European indices were trading with gains in the range of 0.255 and 0.78% and the US stock futures were trading with gains. Markets in the US will be closed for the Thanksgiving Day holiday today.
Back home, foreign institutional investors were net buyers and bought shares worth Rs182.59 crore on Wednesday while domestic institutional investors sold shares worth Rs133.08 crore.
Ashapura International, a subsidiary of Ashapura Minechem is planning to set up a kaolin powder making plant at Bhuj in Gujarat, which would make the company one of the largest producer of kaolin in Asia. The project is likely to be stationed close to the mineral reserves in Kutch. However, the quantum of investments and capacity has not been disclosed. Ashapura Minechem rose 4.9% to close at Rs40.55 on the BSE
Blue Dart Express, which was in news after its promoters announced plans to sell 6.03%  of their stake through offer for sale route, today informed BSE that "floor price" for the sale shares shall be Rs. 1,720 per equity share. DHL Express (Singapore) Pte Ltd, submitted a notice of offer for sale of 1.43 million shares of Rs10 each of Blue Dart Express representing 6.03% of the equity share capital. Blue Dart Express rose 20% to close at Rs2,056 on the BSE


LIC allowed to buy up to 30% equity in a company

The new norms will enable the cash-rich LIC, which invests around Rs50,000-Rs60,000 crore in equity annually, to pick up higher equity in state-owned companies during the disinvestment process

New Delhi: Hard pressed to meet the Rs30,000 crore disinvestment target, the Finance Ministry has permitted state-owned Life Insurance Corp of India (LIC) to invest up to 30% in a company as against the earlier ceiling of 10%, reports PTI.


"LIC can invest up to 30% of a company's paid-up capital. Earlier it could invest up to 10%," Financial Services Secretary DK Mittal told reporters.


The notification relaxing investment norms for LIC has been issued, he added.


The new norms will enable the cash-rich LIC, which invests around Rs50,000-Rs60,000 crore in equity annually, to pick up higher equity in state-owned companies during the disinvestment process.


The Insurance Regulatory and Development Authority (IRDA), however, was against LIC picking up more than 10% equity in a company. It wanted LIC to stick to the norms applicable for private insurers.


The government's decision is apparently aimed at pushing through the disinvestment process which had so far remained a non-starter.


The government in the budget for 2012-13 had proposed to raise Rs30,000 crore from stake sale in public sector units (PSUs).


Finance Minister P Chidambaram in a recent interview to PTI had expressed the confidence that government would endeavour to be as near the target as possible.


The government proposes to sell equity in several state-owned companies like Nalco, Hindustan Copper, SAIL, BHEL, MMTC and Oil India Ltd (OIL). It is also planning to sell residual equity in companies privatised earlier.


In view of the subdued tax collection and subdued revenue realisation, the Finance Ministry had raised the fiscal deficit target for the current fiscal to 5.3% of the Gross Domestic Product (GDP) from 5.1% estimated earlier.




5 years ago

Can we call this is RGESS - II; using people's money (Insurance premium amount paid to LIC)for meeting divestment targets.

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