Edelweiss said while net profits of companies it tracks grew by just 2.7%, revenues increased 11.7% during the December quarter as against its expectations of 10.4%, which came as a positive surprise

The December quarter for Indian companies, excluding oil marketing companies, proved to be lacklustre with net profits growing merely 2.7% compared with the year-ago period. This was due to increase in interest cost. However, the encouraging factor during the quarter was the 2% beat on earnings before interest, taxes, depreciation, and amortization (EBITDA) front for our coverage universe, says Edelweiss Securities, in a report.
 

“Net profit for Sensex companies grew 4% on year-on-year (YoY) basis, higher than 3.3% estimated. The big misses in Bharti Airtel (Bharti), Tata Steel and Tata Motors were offset by positive surprises in GAIL, NTPC and Hindalco Industries. EBITDA margin for Sensex companies expanded 24 basis points (bps) quarter-on-quarter (QoQ) against expectation of 14bps QoQ decline. Revenue of Sensex companies surged 9.6%YoY against the estimate of 8.9%,” the brokerage said.

According to Edelweiss, higher interest costs are hurting profitability of companies. “The difference between the positive EBITDA surprise and negative surprise in PAT is the surge in interest costs. Interest costs, as percentage of sales for our coverage universe (ex-OMCs), jumped 40bps QoQ to 3%, highest in the last three years. With the RBI in easing mode, this component should decline going forward and could act as a tailwind,” it added.

On the sectoral front, according to Edelweiss, infrastructure issues continue to plague the economy with capital goods and construction sectors facing execution delays. While higher ad spends dented auto margins, IT and energy were the bright spots. The divergence between PSU banks and their private sector counterparts continued in Q3FY13 as well. PSU banks’ results were characterised by weak asset quality, moderating loan growth and higher provisioning on restructured assets. Private banks, meanwhile, showed little stress on asset quality, it added.

Given the slowing momentum in economic growth, Edelweiss said, discretionary demand took a hit with categories like food and certain personal products posting a slowdown; however, non-discretionary items were impervious. Consumer companies surprised positively in terms of volume growth with 10 out of 14 companies growing in line/better than expectations. Premiumisation trend continues with no major signs of down trading and rural demand remained healthy while gross margins for the sector also improved.
 

Coal and gas supply issues continued to loom over the utilities sector. Slowdown in volume growth was also observed in a few discretionary categories. Improvements in discretionary spending and in realisations were the primary positives for IT. For energy, the improvement in gross refining margins (GRMs) of complex refiners was positive, but upstream continues to remain a concern, Edelweiss said.