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Informist, Thursday, Feb. 20, 2025

 

By Anshul Choudhary

 

MUMBAI – Seven out of the 19 sectors constituting the Nifty 200 index outperformed analysts' expectations on net profit, excluding exceptional items, or adjusted net profit, in the December quarter, according to an Informist analysis. However, the adjusted net profit of 10 sectors was below expectations and two in line with estimates.

 

The best outperformer was the cement sector, which beat expectations by a wide margin with cumulative adjusted net profit rising 27% on year as compared to expectations of a decline of 34%. The telecommunication sector also beat estimates handsomely with the cumulative net profit of five companies coming in at over INR 52 billion against estimates of over INR 5 billion. 

 

The chemicals and real estate sectors also topped estimates as both sectors reported a net profit growth of 61?ch, while expectations were that profits would rise 40% on year. The better performance of the chemicals sector was largely due to the turnaround in UPL Ltd. The performance of the real-estate sector, similarly, owed a lot to DLF Ltd., which reported a jump in profit due to a reversal of tax liability. The metal and mining sector was also an outperformer with net profit growing 5% on year compared with the analysts's estimate of a 7?cline.

 

Banks and pharmaceutical and healthcare companies exceeded expectations on net profit growth, reporting a rise of 11?ch against expectations of a 5% growth each.

 

Among underperformers, consumer durables disappointed the most. The net profit of consumer durable companies rose 66% during the quarter, while analysts were hoping the sector would double its profits. Services companies showed a net profit growth of 11% compared with analysts' expectations of a 30% rise.

 

Among other consumer-facing sectors that underperformed was the automobile sector which reported a 1?ll in net profit while analysts had expected a rise of 5%. Auto-ancillaries also underperformed with their net profit rising only 6% against expectations of a 10% growth. The jewellery sector's net profit fell 1% on year, while analysts had expected a 10% rise. 

 

The energy sector, which has a weightage of over 12% in the Nifty 200 index, also reported numbers that were way below expectations. The net profit for energy companies fell 8% on year, while analysts had expected it to be flat. Capital goods companies reported a net profit growth of 7%, lower than the expectations of an 11% growth. Financial services companies, excluding banks, reported a 17% growth in net profit, slightly lower than the expectations of a 19% rise. Apart from these, infrastructure companies reported a net profit growth of 1% on year against expectations of 30% growth.

 

Information technology and fast-moving consumer goods sectors managed to meet analysts' expectations for the December quarter. The net profit of information technology companies grew 8% on year and FMCG declined 3%, in line with expectations. 

 

Overall, the Nifty 200 companies reported a year-on-year growth of 8.8% in adjusted net profit, slightly below the Informist Poll estimate of a 10% growth. Including exceptional items, the net profit for these companies rose 18%. The cumulative net revenue of these companies rose 5.5% on year, slightly above the expectations of a 4% growth.

 

OUTPERFORMERS

The 27% growth in net profit of four cement companies was largely on account of unusually higher government grants and the reversal of tax provisions for ACC Ltd. and Ambuja Cements Ltd. Sales of the four cement companies rose 6% on year, while analysts had expected sales to be flat.

 

The 61% growth in the net profit of nine chemical companies in the Nifty 200 index was driven by UPL, which reported a consolidated net profit of INR 9 billion during the quarter as compared with a net loss of INR 12 billion a year ago. While the net profit of UPL swung by INR 21 billion, the sector as a whole reported a net profit of only INR 34 billion including UPL. Excluding UPL, eight companies in the sector saw their cumulative adjusted net profit decline by nearly 24% on year. Apart from UPL, the chemical sector's performance was largely muted with paint-makers struggling due to weak domestic demand and agro-chemical companies seeing poor demand from export markets. Net sales of the nine chemical companies rose 8%, slightly below the expectations of a 10% growth.

 

The profits of several real estate companies surged on strong demand for residential projects in Gurgaon and Noida. The 61% growth in net profit reported by the sector was partly due to DLF reversing a tax liability of over INR 8 billion. Excluding DLF, the net profit growth of the other five real estate companies in the Nifty 200 index came down to 40%, which was in line with expectations for the sector. For the six real estate companies, the net sales rose 23%, missing expectations of a 34% growth.

 

In a major turnaround for the telecommunication business, five companies in the sector reported a cumulative adjusted net profit of INR 52.50 billion as compared with a net loss of nearly 32 billion a year ago. Within the sector, the adjusted net profit of Bharti Airtel Ltd. nearly tripled, while Vodafone Idea Ltd. managed to shrink its losses, led by tariff hikes announced by the companies in July. Among others, Indus Towers Ltd. reported a sharp rise in net profit, though this was largely due to the reversal of "allowances for doubtful receivables" of INR 30 billion, which analysts said was largely pertaining to dues from Vodafone Idea.

 

The five telecom companies reported a sales growth of 14% during the quarter, in line with expectations. However, Bharti Airtel single-handedly carried the overall revenue growth for the sector with a 19% rise in consolidated sales. Excluding Airtel, the sales growth for the remaining four companies was only 6%. Also, these four companies made a cumulative net loss of INR 20 billion, excluding exceptional items, largely as the loss of Vodafone exceeded the combined profit of the remaining three. 

 

Steel majors, including Tata Steel Ltd. and JSW Steel Ltd., saw their profits plunge by 50-70% as cheap imports from China forced domestic companies to sell products at lower prices. However, companies in the aluminium business--Vedanta Ltd. and Hindalco Industries Ltd.--had a significantly better quarter as product prices rose after China cancelled tax incentives on aluminium exports. This meant the sharp growth of aluminium players was partially offset by weak performance of steel makers leading to a 5% growth in net profits for eight companies in the metal and mining sector. Net sales of these companies rose 4.5% on year, marginally better than expectations of 4% growth.

 

Private banks reported poor growth in net profit due to higher credit costs and a slowdown in credit growth, triggered by the Reserve Bank of India's crackdown on unsecured lending. The 11 private banks still managed a 4% growth in cumulative adjusted net profit and a 10% growth in net interest income as the pace of fall in net interest margin moderated during the quarter. 

 

"Loan growth moderated... due to slower deposit growth, a slowdown in the unsecured segment, and other factors such as the tightening of policies related to lending to specific segments," Sharekhan said in a post-earnings analysis. Public sector banks were better off during the quarter owing to their lower share in unsecured loans, the brokerage said. On a cumulative basis, the nine public sector banks in the index reported a growth of 18% in their adjusted net profit during the quarter, while their net interest income rose only 4.8% as the net interest margin decline was worse than that of private banks.

 

Overall, the adjusted net profit of 20 banks rose 11% on year, significantly better than expectations of a 5% growth. Excluding banks, the net profit growth of the remaining 180 companies in the Nifty 200 index dropped to 8.2% as compared with 8.8% growth including banks.

 

Several pharmaceutical companies reported growth on healthy demand from the domestic market amid traction on the back of new launches and client additions. Momentum from the US was mixed with the US business of Sun Pharmaceuticals Ltd. struggling and Zydus Lifesciences Ltd. showing healthy growth. The net sales for the 13 companies in the sector grew 11%, in line with the expectations of analysts. The pharmaceutical companies reported an 11% rise in cumulative net profit to INR 117 billion.

 

UNDERPERFORMERS

Some of the biggest companies in the energy sector, which includes oil and gas, transmission and power distributors, struggled due to lower sales during the December quarter. This sector, which has 25 companies and contributed to one-third of the total sales of the Nifty 200 companies, showed hardly any sales growth. The overall sales of these 25 companies rose a mere 0.6% on year during the quarter, but this was still better than expectations of a decline of 4%. 

 

The energy sector witnessed company-specific issues including weak demand, lower prices for some products, higher cost of raw materials, and weak refining margins. Poor sales growth naturally affected the sector's net profit, which declined 8% on year, making it the worst-hit sector during the quarter. 

 

Excluding the 25 companies in the energy sector, the adjusted net profit of the remaining 175 companies in the Nifty 200 index, grew 14% and sales rose 8%. This was much better than the net profit growth of 8.8% and sales growth of 5.5% that 200 companies, including the energy companies, reported. 

 

Within the energy sector, Indian Oil Corp. Ltd, the largest oil marketing company, reported a 3?ll in sales and a 70% contraction in its adjusted net profit due to weak refining margins, affecting the overall profit of the energy sector. Excluding Indian Oil Corp., the remaining 24 companies reported a marginal rise in cumulative net profit for the December quarter.

 

Among other big players in the sector, Adani Enterprises Ltd. saw its profits nearly wiped out during the quarter as its sales fell without a concomitant decline in its expenses. Oil and Natural Gas Corp. Ltd. struggled due to lower crude oil realisation, while Coal India Ltd. reported a fall in earnings due to lower e-auction prices on muted demand from power companies. Excluding Indian Oil Corp., Adani Enterprises, ONGC, and Coal India, the net profit of the remaining 21 companies in the energy space rose over 13% on year.

 

The other energy companies showed promising growth in earnings during the quarter. Apart from Indian Oil, other state-owned oil marketing companies--Bharat Petroleum Corp. Ltd. and Hindustan Petroleum Corp. Ltd.--had a much better quarter as weak gross refining margins were offset by better marketing margins. Reliance Industries Ltd. also reported a year-on-year increase in its quarterly net profit after declining for three quarters as volumes in its largest business of oil-to-chemicals improved.

 

Earnings of automobile manufacturers earnings continued to see a slowdown with several companies missing estimates during the quarter amid weak demand from urban consumers, which led to a 1% on-year decline in adjusted net profit. Tata Motors Ltd., the largest Indian automaker in terms of sales, reported a decline in net profit for the second straight quarter. Two-wheeler companies such as Hero Motocorp Ltd. and Bajaj Auto Ltd. reported their weakest growth in several quarters.

 

Overall, the 10 automobile companies in the index reported a sales growth of 8% on year, slightly below expectations of a 9% growth. Auto-ancillary companies also felt the negative impact of weak demand as the sales growth of seven companies in the sector rose 8%, missing expectations of an over 10% rise.

 

While festival demand was largely missing for automobile companies, companies in consumer durables, retail, and services sectors managed to benefit from better demand. Dixon Technologies (India) Ltd. saw bumper sales of mobile phones and the company's consolidated sales more than doubled, while Havells India Ltd. and Voltas Ltd. saw double-digit growth in sales.

 

Overall, the cumulative sales of three consumer durables sector companies rose nearly 56% on year and net profit rose 66% on year, making it the best growth figures for any sector. However, the net profit figures were widely below expectations due to a sharp rise in raw material cost--which increased 73% for the three companies--even as sales growth was slightly better than expected.

 

Retail players had a healthy quarter with cumulative sales of five companies growing nearly 18% on year, which was in line with expectations. Services companies saw their sales rise 10% on year, marginally missing expectations of an 11% growth.

 

Capital goods companies, the most sought-after in recent quarters, saw muted growth in net profit during the quarter as capital expenditure by the government did not pick up as expected. The 18 companies in the sector reported a cumulative adjusted net profit growth of over 7%, while sales rose 18% on year. The sector missed estimates on both parameters as analysts had hoped for a nearly 20% growth in sales and an 11% rise in profits.

 

Financial sector companies, excluding banks, reported much better profitability with 29 companies in the sector showing a net profit growth of over 17% on year. The cumulative revenue of these companies rose only 4% on year, widely missing expectations of an 18% growth. The underperformance was largely due to a 9?ll in the net premium income of Life Insurance Corp. of India Ltd., which is the biggest company in the sector in terms of sales. Excluding LIC, the remaining 28 companies reported a 12% rise in revenues.

 

The financial sector, including banks, made a major contribution to overall earnings growth during the quarter. Excluding banks and other financial services companies, the net profit growth of the remaining 151 companies in the Nifty 200 dropped to 6.4% compared with the overall adjusted net profit growth of 8.8% for all Nifty 200 companies.

 

SOFT AS EXPECTED

Fast-moving consumer goods companies saw their profits tumble 3% on year due to weak consumer demand, especially from urban areas. Apart from weak demand, inflation in raw materials such as palm oil, tea, coffee, and cocoa also hurt profits during the December quarter.

 

Sales growth was much better as these companies raised prices to offset the impact of higher costs. However, higher prices capped the volume growth. The net sales of the 12 FMCG companies rose nearly 9% on year during the December quarter, slightly missing analysts' expectations of over 10% growth. 

 

"Rural/Tier 2-4 markets sustained their growth momentum while Metros/Tier-1/urban markets remained stressed, especially in general trade channels and largely among lower/lower-middle income consumers. Some downtrading to smaller packs/economical brands was also seen, impacting mix and realisations," Systematix Institutional Equities said in its post-earnings report on the FMCG sector.

 

The December quarter was soft for most of the large-caps in the information technology sector, while some mid-caps saw significantly better growth. Companies saw improvement in sales from their major segment--banking, financial services, and insurance--while facing the negative impact of furloughs during the quarter. Earnings were in line with expectations, but hopes were low to begin with considering the December quarter is seasonally weak, analysts said. 

 

Overall, the cumulative net revenue of 13 IT companies among the Nifty 200 rose 6% on year, largely affected by muted growth figures from large-cap companies. Among mid-caps, Coforge's consolidated sales rose over 40% on year and that of KPIT Technologies rose 18%. Sequentially, the sector's net profit was up 3% and sales rose just over 1%.

 

"Deal wins improved for most covered companies on a YoY (year on year) basis despite the seasonality, which is uplifting. Management commentaries reflect a gradually improving macro environment with green shoots emerging in discretionary spends, especially in BFSI, while the deal pipeline remains strong," Sharekhan said in its post-earnings report on the sector. 

 

The following table is the snapshot of the sector-wise performance of companies during the December quarter as compared with the same quarter last year compared with the Informist Poll. The data is in percentages, unless otherwise specified, and the change is year-on-year.

 

Sector	Number of Cos	Oct-Dec net sales (% change YoY)	Oct-Dec PAT excluding exceptional items (% change YoY)		No. of cos for which estimates were available	Oct-Dec sales as per Informist Poll (% change YoY)	Oct-Dec PAT as per Informist Poll (% change YoY)
Telecommunications	5	13.8	INR 52.47 billion		5	13.8	INR 5.13 billion
Consumer durables	3	55.7	66		3	49.5	98.5
Chemicals	9	8.0	61		8	10.1	40.4
Real estate	6	23.3	61		6	33.6	39.9
Cement	4	5.9	27		4	0.1	(-)34.0
Retail	5	17.9	22		5	18.5	32.1
Financial services, ex-banks	29	4.0	17		21	18.2	18.7
Services	6	10.5	11		6	10.8	29.8
Pharma and healthcare	13	11.3	11		13	10.8	5.3
Banks	20	7.1	11		17	7.9	5.2
Information technology	13	5.8	8		12	5.8	8.0
Capital goods	18	17.6	7		17	19.5	10.9
Auto-ancillary	7	7.7	6		7	10.4	10.3
Metal and mining	8	4.5	5		8	3.7	(-)6.8
Infrastructure	5	14.0	1		5	9.7	30.1
Jewellery	2	28.0	(-)1		2	32.9	9.9
Automobile	10	7.6	(-)1		10	9.2	5.2
FMCG	12	8.9	(-)3		12	10.4	(-)3.1
Energy	25	0.6	(-)8		20	(-)4.0	0.5

 

*  Absolute number of profit has been given for telecom instead of a percentage change because the sector has reported a net profit from a net loss in the year-ago quarter.

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

For more details on company-specific estimates, please read the story "[I] Nifty 200 Earnings Poll: Estimates of Oct-Dec PAT, sales". 

For more details on company-specific earnings, please read the story "[I] Highlights of India cos Oct-Dec earnings detailed so far". 

 

End

 

Data compiled by Vinod Bhovad

Edited by Saji George Titus

 

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