Q2 results: metals, oil & gas firms remain laggards

Revenues of Nifty 100 companies have declined 6.5 per cent year-on-year while adjusted net profit has fallen 5.3 per cent during the September quarter.

However, the performance gets better if one excludes oil and gas, metals and financial services companies.

Revenues of Nifty 100 companies, excluding these sectors, have decreased by 2.4 per cent while profitability is much better with a 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 better, especially on the profitability front with adjusted net profit growth of 8.9 per cent.

Tata Motors witnessed 1.1 per cent increase in its consolidated revenues. But operating profit dropped 33.4 per cent while the company incurred an adjusted loss of ₹314 crore, compared to a profit of ₹3,275 crore in the same quarter last year.

“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 profitm respectively,” said Pankaj Pandey, Head of Research, ICICI Direct. Net profit of Sensex companies has declined 2.4 per cent y-o-y, but better than Kotak Institutional Equities’ expectations of 3.6 per cent.

Sreesankar, head of institutional equities at Prabhudas Lilladher, expects Tata Motors’ financial performance to improve in the second half of FY16.

Revenues of companies in the Nifty 500 index, but excluding Nifty 100 constituents, have grown 2.5 per cent y-o-year while operating profit and adjusted net profit have increased by 5.7 per cent and 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.

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 operating profit growth of companies across size and scale has been better due to the benefit of lower input costs (raw material expenses).

Going ahead, though consensus saw bottoming out of India Inc performance before the onset of the September 2015 quarter, some like Pandey are sceptical. About 60 per cent of the net profit of Nifty and Sensex 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 lacklustre 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 two to three 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 for FY16, down from 14 per cent.