The Sensex and the Nifty have given a sharp correction of 3.65% and 4% respectively in the month of April 2015. The Q4FY15 results have not been very encouraging for stocks in some sectors but some of the other sector stocks have reported higher than estimated results. The laggards have seen a sharp correction as expectations were running high. Let us look at some of the sectors and the results trend in the last quarter.
The Large cap IT stocks have reported muted earnings for Q4FY15 with most of them reporting tepid growth on a year on year and sequential quarter on quarter basis. Some of the Private sector banks have reported strong earnings growth in spite of overall credit growth trending at below 10% for FY 15. A few of the Automobile sector stocks have reported healthy earnings growth but overall sales growth is far from robust. Cement companies continue to trade expensive on the hopes that revival in infrastructure spending due to new plans announced by the Government would result in greater capacity utilization.
The fourth quarter earnings have initiated a shift in the preference for stocks. Stocks that are registering slowdown in earnings growth are making way for stocks that are reporting relatively healthy growth in earnings.
India’s largest software services exporter, TCS , reported its fourth-quarter revenues that declined 1.1 % to Rs..2,42,200 million, EBIT fell 0.5 % to Rs..65,910 million while net profit (adjusted for one-time employee bonus) rose 8.4 % to Rs.59,060 million. In constant currency terms, revenues were up 1.6 %. In dollar terms, revenues were down 0.8 % sequentially. In other key metrics, volumes grew 1.42 % QoQ, utilization (excluding and including trainees) stood at 85.4 % and 81.5 % while attrition was at 14.9 %. According to the CEO Mr. Chandrashekaran the company’s execution has been solid and the dismal Q4FY15 earnings come on the back of poor macroeconomic and demand conditions. The beginning of the Q4FY15 earnings season suggests tepid growth for the IT industry with the largest player reporting not so encouraging results. TCS did not provide a qualitative or quantitative guidance for FY16. According to the Company Investments in digital and automation would serve as an ideal growth springboard for FY16 and that deal pipeline and momentum remained strong.
Infosys ‘s fourth quarter earnings missed street expectations on every parameter but FY16 dollar revenue growth guidance was a positive surprise. Additionally the country’s second largest IT services exporter also surprised investors. with a 1 for 1 bonus share issue. Infosys reported a 3.5% increase in the consolidated net profit to Rs.30,970 million from Rs.29,920 million on a year on year basis and a decline of 4.71% from Rs..32,500 million on a sequential quarter on quarter basis. The sales increased by 4.16% to Rs.1,34,110 million from Rs.1,28,750 million on a year on year basis and a decline of 2.79% from Rs.1,37,960 million on a sequential quarter on quarter basis.
The dollar denominated consolidated net profit has shown an increase of 2.26% to USD 498 million from USD 487 million on a year on year basis and a decline of 4.6% from USD 522 million on a sequential quarter on quarter basis. The dollar denominated sales increased by 3.2% to USD 2.159 billion from USD 2.092 billion on a year on year basis and a decline of 2.66% from USD 2.218 billion on a sequential quarter on quarter basis.
According to the company the industry is going through a fundamental and structural transition and pricing continues to be under pressure due to increasing commoditisation in the traditional outsourcing business, making it mandatory for the company to ramp up productivity through automation and enhance their differentiation in large engagements. Infosys expects FY16 dollar revenue to grow 10-12 % in constant currency terms which is below the NASSCOM guidance of 12-14 %. The company aims for revenue growth of 6.2%-8.2 % in dollar terms and rupee revenue growth of 8.4%-10.4 % during FY16.
Clearly the IT companies are witnessing a slowdown in the earnings growth and that is reflected in the quantum of correction that the S&P BSE IT index has seen in the month of April 2015. The S&P BSE IT index has declined 7% in the month of April 2015.
TCS and Infosys trade at a FY15 P/E ratio of 24.79 and 18.73 respectively. The stocks might get rerated to lower levels in the coming quarters if growth slows down further. TCS has a lot of scope to get rerated to lower levels if growth slowdown continues in the new financial year.
Maruti Suzuki India’s net profit rose 6.51% to Rs.12,842.4 million on 11.48% rise in total income to Rs..1,39,447.4 million in Q4 March 2015 over Q4 March 2014. Higher volumes, material cost reduction initiatives, favourable foreign exchange and lower sales promotion expenses contributed to the bottom line in Q4 March 2015. The company’s vehicles sales rose 6.7% to 3.46 lakh units in Q4 March 2015 over Q4 March 2014.
TVS Motor Company reported earnings with the profit rising 74% year-on-year to Rs..905 million for the quarter ended March. Revenue grew by 13.8% to Rs..24,570 million during January-March quarter compared to Rs.21,598 million in the corresponding quarter of last fiscal.
TVS Motor company sold 0.604 million units during the quarter, up 7.7% (down 7.8 % Q-o-Q) compared to 0.565 million units sold in the same quarter last year. Exports grew by 21.4% to 0.106 million units and domestic sales increased by 5.2% to 0.497 million units during the same period. However, the quarterly volume growth has slowed down considerably in Q4 compared to earlier quarters.
The S&P BSE Auto index has corrected 4.8% in the month of April 2015 and if the growth trend does not increase for Auto companies, stocks would get rerated to lower valuations going ahead.
Maruti Suzuki and TVS Motors trade at a FY15 P/E ratio of 29.88 and 34.29 respectively. The stocks would see correction if sales do not pick up in FY 16.
Idea Cellular ’s consolidated March quarter net profit rose 22.8 % to Rs..942 million, compared to the December quarter. Consolidated quarterly revenues rose 5.1 % to Rs.8422.5 million sequentially. Standalone quarterly net profit stood at Rs.837 million, up 66 % year-on-year, and up 24 % sequentially. Standalone revenue rose 22% year-on-year to Rs.8541 million. Average revenue per user for the March quarter was flat sequentially at Rs.179, and average revenue per minute declined to 44.80 paise, compared to 46.30 paise. Average voice revenue per minute too declined to 33.90 paise, from 35.60 paise in the preceding quarter.
Telecom major Bharti Airtel ‘s consolidated net profit fell 12.6 % to Rs..1255.3 million in the March quarter compared with Rs..1436.5 million in the December quarter. The country’s largest telecom operator had reported net profit of Rs.962 million in the year-ago period. Consolidated revenue during the period stood at Rs.23015.5 million, down 0.9 %, from Rs.23217.1 million in the preceding quarter. Bharti Airtel reported average revenue per user (ARPU) at Rs.198 in the March 2015 quarter against Rs.202 in the previous quarter in FY15. Voice RPM in the fourth quarter stood at 36.22 paise versus 37.67 paise Q-o-Q.
The S&P BSE Telecom index has corrected 2.27% in the month of April 2015. Telecom stocks are not the preference in the current scenario as high spectrum costs have impacted profitability for the companies.
Idea Cellular and Bharti Airtel trade at a FY15 P/E ratio of 20.10 and 29.84 respectively. The outlook for the stocks is not too positive as rise in profitability would be constrained by higher spectrum expenses in the coming quarters.
ICICI Bank declared results with the profit rising 10.2 % year-on-year to Rs..2,922 million in the quarter ended March 2015. Strong net interest income, other income and operating profit boosted the bottom-line but sharp rise in provisions capped the profits. Asset quality worsened during the quarter. Net interest margin improved to 3.57 % in March quarter from 3.46 % in December quarter and the same in FY15 improved to 3.48 % compared to 3.33 % in FY14. The bank has continued to see robust growth in its retail disbursements resulting in a year-on-year growth of 25 % in the retail portfolio at March, 2015. The retail portfolio constituted about 42 % of the loan portfolio at the end of March quarter. Provisions for bad loans jumped 88.4 % to Rs.1,345 million in the fourth quarter of financial year 2014-15 compared to Rs.714 million in the year-ago period. The sequential rise in provisions was 37.2 %. Asset quality has worsened with the gross non-performing assets (NPA) rising 75 basis points year-on-year (up 38 bps sequentially) to 3.78 % and net NPA climbing 64 bps Y-o-Y (up 34 bps Q-o-Q) to 1.61 % during the quarter due to higher restructured assets.
HDFC Bank ’s net profit rose 20.6 % to Rs..2807 million in the quarter ended March 2015 as compared to Rs.2326. 52 million year-on-year. During the quarter, its net interest income was up 21.4 % at Rs.6013 million veRs.us Rs.4952 million on a yearly basis. Gross non-performing assets (NPA) was at 0.9 % veRs.us 1 % (Q-o-Q) while net NPA was at 0.2 %. In absolute terms, gross NPA stood at Rs.3438.4 million compared to Rs.3467.9 million in the last quarter of the same fiscal. Net NPA was at Rs.896.3 million.
Axis Bank reported fourth quarter results in which the net profit rose 18.3% year-on-year to Rs.21,800 million. Net interest income, other income and operating profit boosted profits during the quarter. Net interest income grew by 20% to Rs.37,990 million for the quarter ended March 2015 compared to Rs.31,658 million in the year-ago period. Provisions for bad loans during January-March quarter shot up more than 40% year-on-year as well as quarter-on-quarter to Rs.7100 million with capital adequacy ratio at 15.09% (against 14.06% in Q3FY15 and 16.07% in Q4FY14). In absolute terms, gross NPA increased 30.6% year-on-year (up 5.3% quarter-on-quarter) to Rs.41,100 million and net NPA climbed 28.5% Y-o-Y (up 5.3 % Q-o-Q) to Rs.13,170 million in the quarter gone by.
The S&P BSE Bankex has declined only 1.76% in the month of April 2015. This suggests that there is a strong preference for Bank stocks. Even though NPA remains a concern for some of the private and public sector banks in times of high interest rates, the monetary policy stance by the RBI with rate cuts announced in the recent time period is a big positive for the sector. Assuming that credit growth has bottomed out in the FY 2014-15 revival in the earnings growth for Banks is most expected in the time to come.
ICICI Bank, HDFC Bank and Axis Bank trade at a FY15 Price to Book Value of 2.26, 3.94 and 3.37 respectively. Banks stocks would garner further interest if NPA levels start declining in the coming quarters.
UltraTech Cement reported a 24 % dip in consolidated net profit at Rs.657.2 million for the fourth quarter of 2014-15, mainly on account of a penalty imposed by CCI on cartelisation charges. The Aditya Birla Group firm had reported a net profit of Rs.864.83 million in the January-March period of 2013-14 fiscal. The country’s largest cement maker reported a growth of 4.47 % in its turnover during the quarter at Rs.6,597.49 million. In the same period of last fiscal, UltraTech had registered a turnover of Rs.6,314.86 million. According to the company the main reason for the dip in its net profit is due to a Rs.117.55 million payment made as ordered by the Competition Commission of India following charges of cartelisation by the company. For the financial year ended March 31, 2015, the country’s largest cement maker reported a 4.88 % drop in its net profit at Rs.2,098.34 million. UltraTech Cement had registered a net profit of Rs.2,206.03 million in 2013-14. The company’s turnover grew by 12.45 % during last fiscal to Rs.24,348.96 million. It had registered a turnover of Rs.21,651.5 million in 2013-14. Cement and clinker sale of grey cement rose to 44.85 million tonnes during the year as against 41.47 million tonnes in 2013-14. With the focus on development of the infrastructure and housing sector, the company is positioned across the country to meet the rise in demands and participate in the next phase of growth in the country.
ACC reported a drop of 40.84 % in its consolidated net profit to Rs.236.54 million for the quarter ended March 31 owing to slackened demand in the domestic market. The company, which follows January to December as its fiscal year, had posted net profit of Rs.399.85 million during the same period last year. Due to the slack in demand for cement from infrastructure and general construction sector in January-March quarter, the overall cement sales volume registered a decline compared with the corresponding period last year. The company’s total consolidated turnover for the quarter under review saw a decline of 2.75%, which stood at Rs.2,885.44 million compared with Rs..2,967.14 million a year ago. During the quarter, sales volume too declined to 5.82 million tonnes as against 6.48 million tonnes in the year-ago period.
There is no separate index that tracks the movement of cement stocks but a slowdown in demand has definitely slackened the earnings growth for the companies. A steady revival in the Indian economy and higher spending in the infrastructure sector would revive demand. Additionally a declining interest rate scenario would revive the demand for housing and construction sector.
Ultratech Cement and ACC trade at a FY15 P/E ratio of 35 and 23 respectively. The stocks maintaining valuations would depend on a revival in demand from the infrastructure and construction companies that would drive earnings growth in the FY 2015-16.
The FMCG stocks are yet to announce their results for the fourth quarter ended March 2015. The Q3FY15 for companies such as Hindustan Unilever and ITC can suggest some trend.
Hindustan Unilever ‘s (HUL) third quarter net profit rose 17.9 % year-on-year to Rs.12,520 million, boosted by income from sale of property. Adjusting for this exceptional item, net profit was up 2.1 % to Rs.9550 million. Revenue grew 7.6 % to Rs.77,740 million in the October-December quarter compared to Rs.72,230 million in the year-ago period with domestic consumer business (FMCG + Water) rising 7.6 %. The FMCG major also disappointed on volume growth front, which stood at 3 %, much lower compared to forecast of 5-6 % and 4 % in Q3FY14. The growth was led by products like Lifebuoy, Lux, Surf, Vim etc. In skin care, Fair & Lovely, Pond’s and Lakme delivered double digit growth. Even Hair Care also delivered another quarter of volume led double digit growth driven by Dove. However, oral care had a subdued quarter as growth was impacted by the phase out of excise duty benefits and by a strong comparator in the base quarter. The management is seeing a pick-up in rural growth but they can’t say if pick-up in rural growth will sustain.
ITC reported lower than estimated top-line as well as bottom-line in the third quarter, due to a significant decline in cigarette sales in volume terms. Profit grew 10.5 % year-on-year to Rs.26,350 million as against expected growth of 12.6 %. The slow growth in cigarette business impacted overall revenue growth of the company during the quarter. Cigarettes revenue rose 0.6 % year-on-year to Rs.41,420 million dented by price hikes, excise duty and increase in the VAT rate in key states (Tamil Nadu, Kerala, Assam).
The S&P BSE FMCG index has declined 2.22% in the month of April 2015. Even though most of the blue-chip stocks in the FMCG space continue to trade at high valuations the extent of correction has been marginal in comparison to other sectors. The revival in demand due to improvement in the macroeconomic environment suggests better growth prospects for FMCG stocks. The expectation of rise in revenues and profitability has already been factored in the high valuations for stocks but they continue to remain market favourites and any correction due to external factors would see strong buying in them.
Hindustan Unilever Ltd. and ITC Ltd. trade at a FY 15 P/E ratio of 46.42 and 26 respectively. The stocks have to show significant recovery in revenues and profitability for high valuations to sustain.
Oil and Gas
Reliance Industries ‘s fourth quarter standalone net profit rose 22.8 % sequentially (up 10.9 % on yearly basis) to Rs..62,430 million driven by strong operational performance in refining business. Sharp Y-o-Y fall in benchmark oil price of around 50 % was the key factor for the decline in revenues for the company. Reliance’s consolidated net profit increased 22.8 % (up 8.5 % on yearly basis) to Rs..63,810 million while revenue dropped 27.9 % (down 34.8 % year-on-year) to Rs..6,74,700 million in the quarter ended March 2015, quarter-on-quarter. Gross refining margin (GRM) was reported at USD 10.1 a barrel against USD 7.3 a barrel in the December quarter, supported by lower flat prices resulting in lower fuel costs and firm gasoline, gasoil and naphtha cracks.
In FY15 the company reported revenues of Rs..38,84,940 million, a decrease of 13 % as compared to Rs..44,63,390 million in the previous year. Profit after tax was higher by 4.8 % at Rs..2,35,660 million as against Rs..2,24,930 million in the previous year.
Other major Oil and Gas companies have yet to announce their results for the quarter ended March 31st 2015. The S&P BSE Oil and Gas index has declined 2% in the month of April 2015. Reliance Industries trades at a FY15 P/E ratio of 10.739. The lower valuations tell the story for Reliance Industries and it is due to the expectation that crude oil prices would remain low in FY 2015-16