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India Inc almost met market expectations, which had estimated a subdued September 2015 quarter. Revenues of Nifty 100 companies, which is a larger universe than Nifty 50, has declined 6.5 per cent year on year while adjusted net profit has fallen 5.3 per cent.
However, the performance gets better if one excludes oil and gas, metals and financial services companies. Revenues of Nifty 100 companies excluding the three sectors mentioned above have decreased by 2.4 per cent while profitability is much better with a positive net profit growth of 1.1 per cent.
Oil and gas and metals have been bearing the brunt of lower realisations on account of drop in commodity prices including crude. Excluding Tata Motors, the performance gets even better especially on the profitability front with adjusted net profit growth of 8.9 per cent even as net sales decline of 2.9 per cent does not get that worse.
Sensex companies
“Excluding oil and gas, metals, financial services and Tata Motors, Sensex companies have seen a growth of 6.1 per cent and 7 per cent in net sales and net profit respectively,” said Pankaj Pandey, head of research, ICICI Direct.
Net profit of Sensex companies has declined 2.4 per cent year on year, but better than expectations of 3.6 per cent by Kotak Institutional Equities. Sreesankar, head of institutional equities at Prabhudas Liladher, expects Tata Motors’ financial performance to improve in second half of FY16.
Revenues of companies in Nifty 500 index but excluding the Nifty 100 have grown 2.5 per cent year on year while operating profit and adjusted net profit has increased by 5.7 per cent 7.5 per cent respectively.
“Mid to smaller companies have done better than the large players due to a lower base,” said Daljeet Kohli, head of research at IndiaNivesh.
ex-Nifty cos 100
Excluding oil and gas, metals and financial services, sales and net profit for ex-Nifty 100 companies in Nifty 500 have grown 4.9 per cent and 16.6 per cent respectively.
Overall and in any case, operating profit growth of companies across size and scale have been better due to benefits of lower input costs or raw material expenses.
Going ahead, though consensus saw bottoming out of India Inc before the onset of September 2015 quarter, some like Pandey are sceptical. About 60 per cent of Nifty and Sensex’s net profit come from global and government related sectors which include metals, infrastructure and public sector banks. There has been no improvement in the fortunes or outlook of the above sectors.
Further, JM Financial said in a note that rural consumption is on a downward trajectory due to decline in farm incomes and lacklustreness in non farm income, which is expected to continue.
“We see meaningful downside risks to our earnings estimates for FY2017 and small risk to FY2016 estimates. We have already seen a fair bit of earnings cut in the 2QFY16 results season but do not rule out further cuts over the next 2-3 quarters,” Kotak Institutional Equities pointed out in a note.
The domestic brokerage expects net profit of the Nifty-50 Index to grow 8 per cent and 20 per cent for FY16 and FY17 respectively, down from 14 per cent and 19 per cent respectively.
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