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Informist, Wednesday, Feb. 19, 2025

 

By Anand JC

 

MUMBAI - In the recently concluded December quarter earnings season, the Nifty Midcap 100 companies have been the best performers of the top 200 companies, though this performance is not as good as the numbers indicate at first glance. These 100 companies reported a 49.9% year-on-year increase in net profit for the December quarter, much higher than the 28.3% growth expected by analysts for 91 of these companies for which estimates are available.

 

Excluding exceptional items, the bottom line growth of these companies is still a staggering 37.2% and significantly above the estimates. The top line of these 100 companies grew 7.2% on year, sharply higher than the 1.4% growth expected by analysts for 91 companies for which estimates are available. A deeper dive into their performance shows very wide variations in performance and a clear focus on cutting costs.

 

For the record, only 58 of these 100 companies reported an increase in profit from a year ago. As many as 36 reported a fall in profit, two swung back into black, and four reported a lower loss than a year ago. Of these 100, only 83 reported an increase in net sales while 17 reported a fall in net sales.

 

The next best group of performers was the Nifty Next 50. These companies, which make up the Nifty 100 along with the Nifty 50, registered a 7.7% on-year growth in net profit, even after excluding one-time items. Including exceptional gains and losses, their bottom line growth was 10.2%, surpassing the 10% average growth expected for the whole Nifty 200. The revenue growth of these companies for the latest quarter, however, was just 2.8% on year, just about half of the growth reported by their blue chip peers.

 

The benchmark Nifty 50 companies reported a 14.4% year-on-year growth in net profit, much higher than the 22-brokerage-Informist poll of a 10% growth. However, excluding one-time gains and losses, their bottom line growth drops to a low 3.9%, making this the worst performance among the sub-groups of the Nifty 200 index companies. The revenue from operations of these companies grew 6.2% on year for the December quarter, just about exceeding the Informist poll projection of a 6.0% on-year growth. This could turn out to be the silver lining to the cloud but only if this trend continues and strengthens.

 

"We are back to the pre-COVID growth when earnings grew 3.3?tween 2014 and 2019. There is no global recession, no major failures. Growth is poor despite this," Dhananjay Sinha, co-head of equities and head of research at Systematix Group, said.

 

The Nifty 100, which combines the benchmark index and the next 50 companies, registered a net profit growth of 4.9% for the December quarter, excluding one-time gains and losses. Including the one-time items, the net profit growth of these 100 companies swells to 13.2% on year. Revenue growth of these 100 companies for the quarter was 5.1%.

 

The broader Nifty 200, which includes companies that are a part of the Nifty 50, the Nifty Next 50, the Nifty 100, and the Nifty Midcap 100, reported a net profit growth of 8.8% on year, excluding one-time items. This is lower than the 10% growth estimated by the Informist Poll. Including the one-time gains and losses, the profit growth of the 200 companies is 17.8%. The Nifty 200 companies reported an on-year growth of 5.5% in their top line for the quarter. This is higher than the Informist Poll estimate of a 4.0% on-year rise.

 

MIDCAP MYSTERY

While the hullabaloo rages on about the expensive valuations of midcaps and smallcaps in India, the financial performance of the Nifty Midcap 100 companies has emerged as an oddity, but not without reason.

 

The 37% on-year growth in the net profit excluding one-time items was driven by seven companies which reported an over 100% increase in their profit. These companies are ACC Ltd., BSE Ltd., Godrej Properties Ltd., Hindustan Petroleum Corp. Ltd., Indus Towers Ltd., NLC India Ltd., and YES Bank Ltd. This 100% plus increase is after excluding one-time items.

 

While ACC reported an other income of INR 12.5 billion because of government grants and reversal of tax liability, Indus Towers' other income grew because of reversal of bad debt provisions on account of dues from Vodafone Idea Ltd. NLC India's other income swelled to INR 4.9 billion, up five-fold from a year ago, while provisions made by YES Bank fell to INR 2.6 billion, half its provisions in the year-ago quarter.

 

Excluding the significant jump in other income for ACC and the reversal of other expense for Indus Towers, the net profit of these companies falls significantly. This then drags down the growth in net profit excluding exceptional items of the 91 companies for which estimates are available to 25.3% from 37.0%, and below the 28.3% estimated growth in net profit.

 

Cost control seems to have been the theme this quarter for the Nifty Midcap companies. Among these 100 companies that make up the Nifty Midcap index and the bottom 100 of the Nifty 200, the purchase of stock-in-trade of 47 companies reduced by INR 78.9 billion on year while the operating expenses of 19 companies reduced by INR 39.4 billion.

 

Together, these constitute an INR 118.3 billion reduction in cost, which has driven profit growth for the full set of 100 companies. For perspective, the INR 118 billion cost reduction constitutes nearly 24% of the INR 492 billion net profit these Nifty Midcap 100 companies have reported for the December quarter, excluding one-time gains and losses. From a different perspective, had these companies not achieved this cost reduction, the growth in net profit after exceptional items for the Nifty Midcap 100 companies would be a mere 4.2%.

 

Also, as many as 97 companies have reported a mere 1.6% increase in other expenses in the latest quarter, a low by any standard as also by recent trend. For 97 companies of these 100 for which data is available, other expenses were up 13.0% on year in the December quarter of 2023 and by 22.4% in the December quarter of 2022.

 

For the December quarter, the Nifty 50, the Nifty Next 50, the Nifty 100, and the Nifty 200 all saw expenses grow faster than revenue. However, in the case of the Nifty Midcap 100, revenue growth was faster than the growth in expenses, which went up 5.4% on year for the quarter, slower than revenue growth of 7.2%. This growth in expenses was led by a 15.5% on-year growth in finance cost. Staff costs for these companies was up 9.6%. For Nifty 50 companies, staff cost was up by 3.0% whereas it was up 4.7% and 3.3%, respectively, for the Nifty Next 50 and Nifty 100 companies.

 

While companies in the other indices cited above reported subdued growth in input costs, those that are a part of Nifty Midcap 100 saw a 6.6% expansion in cost of materials consumed, higher than the Nifty 50, the Nifty 100, and the Nifty 200 companies.

 

Excluding one-time items, Nifty Midcap 100 companies' profit margin for the December quarter was 9.5%, up from 7.4% in the base quarter and 7.9% in the September quarter. Without adjusting for exceptional gains and losses, the profit margin for the quarter was 10.4%, higher than 7.5% in the base quarter and 8.2% in the sequential September quarter.

 

NIFTY 50

The December quarter is traditionally one where Indian companies see more growth compared to other quarters, owing to the festival season. Yet when compared to the September quarter, the blue chip companies' net profit grew only 8.6%. Excluding exceptional items, the sequential growth in profit falls to 2.7%.

 

State Bank of India Ltd. and Bharti Airtel Ltd. reported extraordinary growth in their bottom line in the December quarter. The state-owned lender reported a profit growth of 84% on year to INR 168.9 billion because the profit of the year-ago quarter was sharply lower due to a one-time provision of INR 71 billion. Bharti Airtel reported a consolidated net profit of INR 147.8 billion, driven by a one-time gain of INR 75.5 billion. Together, the net profit of these two accounts for slightly over 15% of the profit of all Nifty 50 companies combined, which is the reason for the sharp skew between the net profit including and excluding exceptional items.

 

Sequentially, the top line of these top 50 companies expanded just 4.3%. Their other income grew 4.3% on year, while sequentially it contracted over 13%. Total expenses for the latest quarter incurred by these enterprises mirrored the revenue growth and increased 6.2% on year. Within expenses, finance costs grew at the fastest clip, at nearly 12% higher than the base quarter. One reason was an increase in debt - the net debt of these 50 companies as of Sept. 30 was INR 39.510 trillion, up 7% from INR 36.725 trillion as of Sept. 30, 2023. Input cost growth was subdued at just over 1% year-on-year, but depreciation costs grew nearly 8%.

 

The profit margin of the top 50 companies for the December quarter was 13.7%, higher than 12.8% in the base quarter and slightly higher than the 13.2% registered in the September quarter. Adjusted for exceptional items, the margin is 13.1%, lower than 13.4% in the base quarter and 13.3% in the previous quarter.

 

NIFTY NEXT 50, NIFTY 100

The Nifty Next 50 represents the next set of 50 stocks after the benchmark Nifty 50. The year-on-year bottom line growth of Nifty Next 50 companies for the December quarter was 10.2%. Excluding exceptional items, the bottom line growth drops to 7.7%. For the December quarter, the top line growth of these 50 companies was a paltry 2.8% year-on-year but a slightly better 3.5% sequentially. The 31% growth in other income could not offset the increase in overall expenditure as total expenses grew at a considerably rapid clip, at 7.2% on year.

 

The profit margin of Nifty Next 50 companies for the December quarter was 11.3%, up from 10.5% in the base quarter and 10.2% in the September quarter. Excluding one-time items, the margin falls to 11% in the latest quarter, higher than 10.5% in the base quarter and 9.8% in the sequential September quarter.

 

The Nifty 100, which combines the Nifty 50 and Nifty Next 50 companies, reported a profit growth of 10.2% sequentially. The revenue growth of Nifty 100 companies was poorer than the Nifty 50 at 4.1% sequentially. The top line growth of these companies failed to eclipse the growth in their expenses, which grew 6.5% on year. Finance costs of these 100 organisations went up nearly 12% on year, while depreciation expenses increased slightly more than 8%.

 

The profit margin of Nifty 100 companies for the December quarter was 13%, higher than 12% in the base quarter and 12.2% recorded in the September quarter. Excluding exceptional items, the profit margin for the Nifty 100 companies falls to 12.4%, as opposed to 12.5% in the base quarter and 12.2% recorded in the September quarter.

 

The following is a snapshot of the companies in the Nifty 50, the Nifty next 50, the Nifty 100, the Nifty Midcap 100, and the Nifty 200 for the December quarter, along with year-on-year and sequential changes juxtaposed with the consensus estimates from the Informist Poll of 22 brokerages:

 

INDICES	Revenue	Other Income	Total Income	Total Expenses	Cost Of Materials	Employee Expenses	Depreciation	Finance Costs	Other Expenses	PAT	Adj. PAT
NIFTY 50	POLL: 6.00%									POLL: 10%	POLL: 10%
YoY	6.22%	4.34%	4.60%	6.24%	1.42%	2.97%	7.64%	11.62%	3.52%	14.36%	3.87%
QoQ	4.33%	-13.46%	1.23%	3.48%	-2.98%	0.64%	3.94%	3.26%	2.59%	8.59%	2.65%
NIFTY NEXT 50	POLL: -1.3%									POLL: 4.86%	POLL: 4.86%
YoY	2.76%	30.89%	1.20%	7.18%	-1.94%	4.72%	10.20%	12.69%	13.21%	10.23%	7.67%
QoQ	3.47%	-2.98%	-1.31%	5.19%	1.45%	-0.58%	5.10%	2.61%	7.21%	14.75%	15.83%
NIFTY 100	POLL: 3.19%									POLL: 4.10%	POLL: 4.10%
YoY	5.10%	11.68%	3.42%	6.51%	0.39%	3.34%	8.19%	11.99%	5.72%	13.20%	4.90%
QoQ	4.06%	-10.32%	0.36%	3.97%	-1.69%	0.37%	4.19%	3.03%	3.68%	10.21%	6.01%
NIFTY MIDCAP 100	POLL: 1.4%									POLL: 28.3%	POLL: 28.3%
YoY	7.20%	13.15%	8.39%	5.39%	6.55%	9.55%	6.24%	15.47%	1.57%	49.90%	37.21%
QoQ	3.18%	-10.40%	2.68%	0.80%	-0.52%	0.23%	3.55%	2.34%	1.21%	30.68%	24.71%
NIFTY 200	POLL: 4.00%									POLL: 10.00%	POLL: 10.00%
YoY	5.49%	11.93%	4.30%	6.28%	1.75%	4.26%	7.78%	12.65%	4.96%	17.78%	8.79%
QoQ	3.89%	-10.34%	0.78%	3.30%	-1.42%	0.35%	4.06%	2.90%	3.23%	13.03%	8.49%

 

The following table shows the net profit margin of companies in the various indices as well as their net profit margin excluding exceptional items:

 

Profit Margin	Dec-24	Dec-24 (Adj)	Sep-24	Sep-24 (Adj)	Dec-23	Dec-23 (Adj)
Nifty 50	13.73%	13.10%	13.19%	13.31%	12.75%	13.39%
Nifty 100	12.95%	12.43%	12.23%	12.20%	12.03%	12.46%
Nifty Next 50	11.26%	10.99%	10.16%	9.82%	10.50%	10.49%
Nifty 200	12.47%	11.87%	11.47%	11.37%	11.17%	11.51%
Nifty Midcap 100	10.44%	9.49%	8.24%	7.85%	7.47%	7.42%

 

 

 

 

 

 

 

 

Adj: Adjusted

(Note: Analyst estimates for each index group are derived from estimates for companies that are part of the respective indices)

 

End

 

With inputs from Anshul Choudhary

Edited by Ashish Shirke

 

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