The Hindu Business Line : Earnings scorecard for July-September: India Inc glows in the litmus test

While non-ferrous metals, oil, software services and banking turned in impressive numbers, investors may have to tread with caution in certain other sectors.

Buoyed by India Inc's strong July-September earnings scorecard across several sectors, the bellwether indices, Sensex and Nifty, broke earlier records to register all-time highs. The Sensex zoomed past the 13,000 mark last week.

This was a crucial quarter, almost a litmus test for the fundamentals of Corporate India as stock prices had not only recovered sharply from the May/June meltdown, but vaulted to new highs in just four months. By October 13, when the Sensex crossed its earlier record high of 12,671, touched in intra-day trading on May 11, it made investors wonder if corporate fundamentals would keep pace with this scorching run in the markets.

And Corporate India has not only delivered, but also delivered handsomely, in the latest quarter, with an average revenue growth of 22.5 per cent and earnings growth of 21.8 per cent, higher than the same quarter of previous year and marginally lower on a quarter-on-quarter basis.

While non-ferrous metals, oil, software services and banking turned in impressive numbers, investors may have to tread with caution in certain other sectors.

Commodity Blockbusters

Cement shines: Companies in the cement sector registered a manifold rise in year-on-year earnings. The combination of higher volume growth and better realisations helped a slew of companies post significantly higher operating margins.

UltraTech Cement appears to have enjoyed a double bonanza, with a 17 per cent volume growth and higher realisations, more than doubling its operating profit margins to 26.5 per cent. Higher cement prices have also had a positive effect on the bottomlines of Mysore Cements and Prism Cements, which reported profits of Rs 20 crore and Rs 22 crore, as against losses a year ago.

Diversified player Orient Paper, with an interest in cement, also reported a turnaround in operations, buoyed the performance of its cement division. However, on a sequential basis, earnings of most companies in this sector dipped on the back of a drop in operating margins. Supported by stable/rising margins, however, India Cements, Madras Cements, Chettinad Cement and Dalmia Cement bucked this trend.

Oil cos climbing out of the hole: Compensation for under-recoveries by upstream companies, commendable revenue growth and lower product costs appear to have aided the turnaround in the operations of oil refining and marketing companies. Higher throughput and revised fuel prices contributed to Hindustan Petroleum's 45 per cent revenue growth year-on-year.

The earnings picture was, however, bleak for standalone refiners, which suffered from margin pressures. Bongaigaon Refinery and Petrochemicals reported lower post-tax earnings on a sequential basis.

Chennai Petroleum and Mangalore Refinery saw a significant drop in earnings, both on year-on-year and sequential basis. ONGC reported flat earnings.

Non-ferrous surge: Buoyed by higher metal prices, non-ferrous companies reported a surge in revenues and post-tax earnings. National Aluminium (Nalco) reported a more than two-fold rise in earnings on the back of a strong performance of its alumina division.

With operating margins rising 13 percentage points to 40 per cent, Madras Aluminium was the top performer in the aluminium pack. Though Hindalco's margins remained flat on a company-wide basis, higher production volumes helped the company report a 90 per cent growth in earnings.

Hindustan Zinc also took centre-stage, reporting a more than five-fold rise in earnings.

Sugar disappoints: Declining sugar prices appear to have taken their toll on companies in this sector, which came out with a set of disappointing numbers on a sequential basis. Uttar Pradesh-based Triveni Engineering reported a 38 per cent drop in earnings (sequential) from its sugar division, though this was more than offset by its steam turbines business, which registered a 40 per cent earnings growth.

In the K.K. Birla group, Upper Ganges reported losses while Oudh Sugar's earnings almost turned negative. The earnings scorecard of the K.K. Birla group companies may be reflective of the numbers of other majors in the sugar heartland. Bajaj Hindusthan and Balrampur Chini are yet to disclose their quarterly numbers.

Services Sizzle

Banking tops the chart: Banking was among the top performers in the earnings chart this quarter. Most banks reported healthy double-digit earnings growth on a year-on-year basis.

Private sector banks outperformed public sector counterparts. Dhanalakshmi Bank figured at the top of the list, reporting a more than five-fold rise in earnings. . South India Bank, ING Vysya Bank, Karur Vysya Bank, J&K Bank and Yes Bank reported earnings growth of over 50 per cent.

State Bank of India was a relatively modest performer in the sector. Though the bank registered a 20 per cent operating profit growth, higher tax provisioning resulted in a 3 per cent dip in earnings.

Software comes up trumps: Buoyed by a robust demand environment for offshoring, both frontline and mid-sized software companies packed a punch in their earning numbers. Software majors such as Infosys Technologies, Tata Consultancy Services, HCL Technologies, Satyam and Wipro turned in numbers that varied from good to strong. A host of small- and medium-size companies in this space, such as Geometric Software, KLG Systel, Kale Consultants, Geodesic Information Systems, Infotech Enterprises and Micro Technologies, reported earnings growth in excess of 100 per cent.

Telecom and media grow: Telecom service providers continued to shine, with both Bharti Airtel and Reliance Communications turning in a solid performance. Tata Teleservices (Maharashtra) continued its recovery story. The company staged improvements on several fronts, resulting in lower losses. MTNL came out with a set of disappointing numbers, with a drop in operating margins contributing to a 25 per cent dip in earnings.

Media companies continued their robust earnings growth story. Print media figured at the top of the list. HT Media reported a more than two-fold rise in earnings on the back of a 28 per cent revenue growth.

Electronic media companies such as NDTV and Television Eighteen also reported an improved scorecard, with NDTV halving its losses.

Auto, the dark cloud

Higher raw material prices appear to have shrunk the margins of companies in the two- and three-wheeler space. TVS Motors, despite a commendable 37 per cent revenue growth, reported a 3-percentage-point drop in operating margins.

Hero Honda Motors also reported a drop in operating margins. The higher raw material costs also dented Bajaj Auto's operating margins, though it posted double-digit earnings growth. The tyre sector, reckoned as a lead indicator of trends in the auto sector, presented a mixed picture, with disappointing numbers on the earnings front in quite a few cases. Companies that operate on thin margins, such as TVS Tyres and JK Industries, were the most affected.

Buoyed by better margins and a 20 per cent revenue growth, Ceat continued its earnings growth story. Balkrishna Industries, with interests in tractor tyres and is among the major exporters of tyres reported a 24 per cent earnings growth, despite higher raw material costs.

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