Early bird Q2 numbers off to promising start
COMBINED NET PROFIT UP 17.2%, FASTEST PACE IN 3 QTRS TECH FIRMS, RIL, HDFC BANK SUPPORT GROWTH
Early bird results at India Inc suggest the earnings season has started on an optimistic note, thanks to better-than-expected earnings growth by three of the country’s top firms — Reliance Industries (RIL), Infosys, and Hindustan Unilever. Tata Consultancy Services (TCS) and HDFC Bank also helped, by reporting numbers that were largely in line with Street expectations.
The combined net profit of the 76 listed companies in our sample was up 17.2 per cent year-on-year (YoY) during the July-September 2018 (Q2) quarter, growing at the fastest pace in the last three quarters.
The combined revenues of these firms were up 33.1 per cent YoY, growing at the fastest pace in at least three years. The latter was driven by RIL, whose revenues were up 57 per cent YoY, thanks to a spike in fuel prices ( see adjoining charts).
With combined net profit of ~338 billion and revenues of ~3 trillion during the quarter, early bird companies in our sample represent a third of the listed companies in terms of net profit and 16 per cent in terms of revenues, based on companies’ average earnings and top line in the last four quarters.
Typically, early bird companies are among the most profitable in India Inc and the earnings scorecard worsens as more companies declare their quarterly earnings.
The quarter belongs to information technology (IT) exporters such as TCS and Infosys, which have regained growth momentum, thanks to a combination of global economic recovery, gains from rupee depreciation, and a low base last year. Both combined net sales and net profit of software companies grew 19.8 per cent YoY each in Q2, the fastest pace in at least three years.
Industry’s margins are on an upward trajectory as top line growth outpaced salary and wages for the second consecutive quarter. Employee costs account for nearly 54 per cent of revenues on average and are a key determinant of margins in the industry.