Early Q2 earnings hint at revival in demand
Post-earnings management commentaries show companies are confident about demand revival, and gradual recovery from the sharp damage suffered in the fiscal first quarter.Updated: Oct 26, 2020, 07:31 IST
September quarter earnings are signalling a recovery, a distinct rebound from the preceding three months when a nationwide lockdown had brought economic activity to a near standstill.
Post-earnings management commentaries show companies are confident about demand revival, and gradual recovery from the sharp damage suffered in the fiscal first quarter. A Mint analysis of 170 listed companies that have announced fiscal second-quarter earnings showed that net profit, adjusted for one-time profit or loss, in the three months to September grew at the fastest pace in four quarters at 6.23% from a year ago. That compares with an 18.9% decline in the June quarter. These firms reported adjusted net profit growth of 10.74% in the same quarter last fiscal, according to Capitaline.
Similarly, net sales growth also quickened to a five-quarter high at 4.91% in the September quarter after declining 14.31% in the preceding three months. The review excludes banks, financial services firms and oil and gas companies as they follow a separate revenue model.
The earnings season has started on a positive note, said Rusmik Oza, head of fundamental research at Kotak Securities. “Sales of 17 Nifty companies has been 11% below estimates, but net profit has been 12% above estimates,” he said.
In the quarter to September, both operating profit margin and net profit margin of these firms widened, respectively, to 26.7% and 15% from 24.9% and 12.7%in the previous quarter.
“Cement and IT reported better than expected numbers. Q2 has seen sustained earnings momentum in IT, resulting in an earnings upgrade,” said Deepak Jasani, retail research head, HDFC Securities. “FMCG, insurance, cards reported subdued numbers while hotels and retail posted expectedly bad numbers.”
Beyond IT services, faster revival is seen in sectors such as two-wheelers, cement, metals and paints, while discretionary spending is gradually returning after the severe slowdown in Q1.
According to Oza, management commentaries are quite positive with a better outlook for the festive season. Oza expects 15-16% earnings growth in the rest of FY21 but cautioned that there are still risks to recovery.