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Informist, Thursday, Feb. 6, 2025

 

By Anand JC

 

MUMBAI - If the equity market was hoping for a recovery in the December quarter earnings of India Inc. after two dismal quarters, it has been in for a rude shock. As many as 39 companies, or 75% of the Nifty 50, have reported their financials so far. On an average, these companies have reported a profit growth of 2.5% against the estimate of 10% that an Informist poll of 22 brokerage houses had expected, a miss of over 70%. Sequentially, however, these companies' profits have risen 5%.

 

While the quarterly performance of the Nifty 50 companies has more than disappointed, the numbers reported by the Nifty 200 do provide a glimmer of hope. The 150 companies of the Nifty 200 that have disclosed their numbers so far have reported a 10.2% growth in net profit over the year-ago quarter, just beating the Informist Poll estimate of 10%. These companies have also beaten the 4% revenue growth estimate of the poll comfortably by more than a full percentage point.

 

The net profit growth of Indian companies started slowing down two quarters ago, having grown at a compound annual growth rate of over 20?tween 2019-20 (Apr-Mar) and FY24, according to Motilal Oswal Financial Services. In the first six months of FY25, the net profit of Nifty 50 companies grew 4% on year.

 

Given that most Nifty 50 companies that have reported earnings have missed their estimates, JM Financial Institutional Securities has cut the earnings per share growth estimate of these companies for FY25 to 3.8% from 5.0?rlier.

 

The total income of these 39 blue chip companies has increased by a paltry 3% on year. This includes the total income of insurance companies, which have reported very substantial one-time losses during the quarter, mainly due to losses booked on their equity investments.  This, in turn, has dragged down the other income and total income for the whole group. Even excluding insurance companies, the total income of 37 Nifty 50 companies has grown just over 6% on year, just about meeting the growth the Informist poll expected these to report.

 

The revenue from operations of 34 Nifty 50 companies, excluding financial services companies, grew roughly 5% on year as well as sequentially for the latest quarter but missed estimates of analysts, who had expected a 6% on-year growth. For 38 blue chip companies, other income, which forms only around 3% of the total income, expanded 6% on year. Sequentially, however, it fell a little less than 8%.

 

Most large cap companies have reported a muted increase in net sales, operating profit, and profit after tax for the reporting quarter. "Only a handful of domestic-oriented sectors, such as capital markets, consumer durables, healthcare and real estate, reported strong growth in revenues and PAT," Kotak Institutional Equities said in a note Tuesday.

 

The profit margin of the 39 companies was 13.21% for the December quarter, barely an improvement from the 12.94% reported in the second quarter of the current financial year. The growth in expenditure of these companies for the quarter kept pace with the revenue growth. The 5% increase in total expenses for these companies was driven by a 12% rise in finance costs and a 5% expansion in staff cost and depreciation each. Raw material costs, which form roughly 30% of the total expenses, fell 1% in the latest quarter.

 

NIFTY 100

The performance of the 79 companies from this index that have reported their earnings so far is only mildly better than their blue-chip peers. While the December quarter revenue growth of these companies is largely similar to the top 50 companies, both on an on-year and sequential basis, their profits grew at a faster clip. Their net profits grew just over 3% on year and 8% sequentially. These companies' other income has zoomed 13% on year but contracted by marginally over 6% sequentially.

 

Analysts say the lack of robust capital expenditure by the central government has played a huge role in this slowdown. "This is more due to capex not happening as expected. There were lot of expectations that capex would improve after the monsoon but that has not happened," Pravin Bokade, head of equity research at IDBI Capital Markets & Securities, said.  "...liquidity shortage in November and December impacted credit growth of banks and consumption also hasn't picked up as expected during festivals," Bokade added.

 

For the December quarter, growth in expenses of these 79 companies kept pace with revenue growth, just as has been the case with the top 50. However, cost of materials fell nearly 2% on year as well as sequentially. Finance costs grew 12% on year for these 79 companies as well. Other expenses, which constitute around 17% of overall expenses, grew nearly 6% on year and 4% over the September quarter. The profit margin of these nearly 80 companies of the Nifty 100 universe for the December quarter was 32.3%, lower than 33.9% registered for the September quarter.

 

NIFTY 200

Exactly 75% of the Nifty 200 companies have disclosed their December quarter financials so far. Unlike the benchmark index companies, the results of these 150 companies are slightly better than expected. These 150 have reported a net profit growth of 10.2% on year, which just beats the Informist poll estimate of 10% growth. On the growth of revenue from operations, these companies have comfortably beaten the poll estimate of 4% by more than a full percentage point. These two seem to be the only bright spots in this earnings season so far.

 

Sequentially, these companies' profits have grown 12% while their revenues have increased 5%. Other income, which is less than 5% of their total income, grew nearly 14% on year, although it contracted nearly 7% sequentially.

 

Raw material prices have remained largely flat for these 150 companies. However, their staff costs and depreciation grew nearly 7?ch, while their finance cost swelled almost 14% over the December quarter of 2023. The 25% operating margin these companies reported in the latest quarter was slightly better than the 24% registered in the September quarter.

 

BROADER PICTURE

So far, 40 of the Nifty Next 50 index companies, which represent the next rung of companies after the benchmark index, have disclosed their financials. These have reported a near 7% year-on-year growth in net profit. Sequentially, the profit is up more than 17%. These companies have reported a staggering 51% profit margin for the December quarter, almost double the margin reported for the September quarter, but only because of the extraordinary earnings of Bajaj Holdings & Investment Ltd. Shorn of that, the margin is a more believable 14.9% for these 40 companies. These companies, excluding Bajaj Holdings, had reported a 14.3% margin in the year-ago quarter.

 

"Some companies in niche business continue to see margin expansion and see benefits of lower raw material prices. At the same time, large-caps already have high margin so that benefit is not present for them," Bokade said. Raw material costs of these 40 companies fell nearly 4% on year in the latest quarter.

 

The top line growth of these 40 companies was just over 4% on year for the quarter, but was nearly 8% sequentially. Their other income, which constitutes just below 5% of their total income, grew almost 29% on year, but fell nearly 4% sequentially.

 

Looking at the data from a slightly different perspective, 71 companies of the Nifty Midcap 150 index have detailed their December quarter earnings so far. The Nifty Midcap 150 includes the bottom 100 of the Nifty 200. The net profit of these 71 companies has risen nearly 55% on year and 37% sequentially. However, this was due to the sharp rise in the net profit of just four companies - Hindustan Petroleum Corp. Ltd., Indus Towers Ltd., IRB Infrastructure Developers Ltd., and UPL Ltd., all because of a low base effect in the year-ago quarter.

 

Excluding these four companies, the profit growth of the remaining 67 companies for the December quarter was only around 14% year-on-year. While total expenses of these companies grew only over 2% on year, revenue growth was nearly 7%. The profit margin of these 71 companies was 17% for the December quarter, higher than the 13% registered in the September quarter.

 

For details about each of the companies' earnings, please refer to story 'Highlights of Indian cos Oct-Dec earnings detailed so far'.

 

INDICES	Revenue from operations	Other Income	Total Income	Total Expenses	Cost of Materials	Employee Expenses	Depreciation	Finance Costs	Other Expenses	Profit After Tax	Profit Margin
NIFTY 50 (39 so far)
YoY	5.11%	6.03%	3.01%	4.83%	-0.79%	4.96%	5.46%	12.17%	2.46%	2.49%	13.21%
QoQ	4.68%	-7.62%	1.29%	3.47%	-3.19%	-0.08%	3.47%	2.24%	2.55%	5.19%	12.94%**
NIFTY 100 excluding NIFTY 50 (40 so far)
YoY	4.61%	28.80%	2.37%	6.49%	-3.62%	10.64%	9.68%	12.52%	17.19%	6.81%	50.96%
QoQ	7.73%	-3.82%	2.72%	6.74%	1.16%	0.68%	4.90%	2.23%	7.64%	17.14%	27.55%**
NIFTY 100 (79 so far)
YoY	4.96%	12.99%	2.82%	5.32%	-1.70%	5.95%	6.47%	12.32%	5.88%	3.56%	32.34%
QoQ	5.54%	-6.33%	1.72%	4.42%	-1.86%	0.06%	3.82%	2.24%	3.81%	8.02%	33.88%
NIFTY 200 excluding NIFTY 100 (71 so far)
YoY	6.46%	15.12%	8.15%	2.62%	8.37%	11.08%	8.08%	17.82%	-1.79%	54.39%	16.95%
QoQ	2.53%	-8.04%	2.21%	-0.91%	-1.46%	1.67%	2.23%	3.49%	0.92%	36.78%	13.20%**
NIFTY 200 (150 so far)
YoY	5.22%	13.38%	3.74%	4.82%	0.26%	6.64%	6.69%	13.56%	4.74%	10.18%	24.85%
QoQ	5.00%	-6.65%	1.80%	3.42%	-1.78%	0.08%	3.59%	2.53%	3.40%	12.32%	23.91%**

** Profit margin data in the YoY row is the profit margin for the December quarter and the data in the QoQ row is the profit margin for the sequential September quarter.

 

(With inputs from Anshul Choudhary)

 

End

 

Edited by Ashish Shirke

 

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