India Inc posts robust earnings in Dec quarter

AN ANALYSIS OF 2,485 FIRMS SHOWS THAT NET PROFIT GREW FASTEST IN AT LEAST 25 QUARTERS

MUMBAI: Corporate earnings grew at a robust pace in the December quarter while the economy is yet to completely recover from the brutal Covid-19 blow. Out-of-home consumption, festive demand and improved consumer sentiment, besides benefits of tight cost control by firms in the first half of financial year 2021 led to betterthan-expected earnings growth in the October-december period.

A Mint analysis of 2,485 publicly traded companies, which reported their third-quarter earnings shows that net profit after adjusting for one-time items grew fastest in at least 25-quarters, at 71.95% from a year earlier, according to data compiled by Capitaline. That compares with 34.88% growth in the preceding three months and a contraction of 12.93% in December quarter of 2018-19. The review excludes banks, financial services and insurance, and oil and gas companies as they follow a different revenue model.

During Q3FY21, net sales growth of these set of companies grew 7.07% year-on-year—a seven-quarter high. Net sales were down 1.8% in the September quarter, while it fell 2.13% in the December quarter of FY20.

“Broadly, earnings across most sectors have been quite robust this quarter and have continued to surprise consensus estimates. Earnings for most metal stocks have been very strong backed by high realizations; within the construction sector, execution has almost normalized to pre-covid levels and also saw very strong order inflows; this trend was also reflected in strong volume growth for the cement sector. Pent up demand drove volumes for discretionary stocks in Q2FY21, strong volume growth continued into Q3FY21 as well and the IT sector continued to see strong deal wins,” Amish Shah, India Equity Strategist, Bofa Securities, said.

Besides strong festive season, pent-up demand, strong rural growth and consolidation in favour of organized players helped overall-demand growth, he added.

The net profit margin of these firms expanded to 9.15% in the three months to December from 7.51% in the preceding quarter and 6.34% in the year-ago. Likewise, operating profit margin widened to 23.76% in Q3 from 22.53% in the preceding quarter and 19.98% in Q3FY20.

“The Q3FY21 earnings season has maintained the momentum of the second quarter results– continued big beats and upgrades, and upbeat corporate commentaries across sectors and companies,” Motilal Oswal analysts Gautam Duggad and Jayant Parasramka said.