The earnings season is back in the spotlight and the numbers announced so far for the December quarter seemed to have sprung no major surprise with automobile and information technology firms and select banks reporting numbers that meet the expectations of the Street even as capital goods and infrastructure firms and PSU banks continued to disappoint thanks to lingering concerns over a slowing economy, drop in orders, policy inertia in the government and flat credit growth.

While over 500 companies have declared their numbers so far, analysts say some of the remaining results — especially those from PSU oil companies and others — may be really bad and that would neutralise the ongoing impact from the impressive numbers delivered by some of the IT and automobile firms.

Sudip Bandyopadhyay, managing director and chief operating officer of Destimoney Securities, said: “Earnings so far have been more or less in line with expectations. The real test will begin when some of the big PSU companies will announce their earnings. While auto firms, especially two-wheeler makers, delivered an excellent set of numbers and IT firms to a large extent benefited from the depreciation of rupee, select private banks continued their good show compared with the previous quarter.”

According to data compiled by Capitaline, 569 companies have declared their results so far and their aggregate net sales accelerated 27 per cent year-on-year during the quarter to Rs 430,575 crore. However, net profit rose by a marginal 0.54 per cent YoY to Rs 44,047 crore.

“Several companies reported higher sales as demand continued to be good despite the economy showing signs of slowdown. As companies faced pricing pressure due to concerns over falling demand and amid intense competition from their peers, steady price tags boosted sales. However, higher input cost, rising interest cost and currency volatility impacted margins, which in turn hit the bottom lines of several companies,” said Avinash Gupta, vice-president at Globe Securities.

According to Care Ratings, a spurt in raw material cost caused operating expenses to rise at a faster pace than sales during the December quarter. The growth rate in interest costs doubled to 50.6 per cent due to higher interest rates, thanks to RBI’s aggressive monetary policy over the past two years.

Two-wheeler manufacturers, in particular, continued to shrug off slowdown concerns as robust volumes during the festive season and postponement of four-wheeler purchases by customers due to high interest rate and fuel costs worked in their favour, say analysts.

Industry leader Hero MotoCorp showed 17 per cent YoY rise in sales at Rs 5,984 crore while net profit rose to Rs 613 crore, up 43 per cent. Bajaj Auto reported net sales of Rs 4,840 crore, up 22 per cent YoY while net profit jumped 19 per cent to Rs 795 crore.

“Bajaj Auto continued to benefit from higher export realisations (up 9.9 per cent quarter on quarter) driven largely by a depreciation of rupee against the dollar and 3.5 per cent price hike,” said Kapil Singh and Nishit Jalan, research analysts at Nomura India.

But four-wheeler major Maruti Suzuki reported one of its worst quarterly performance with sales dropping 17 per cent to Rs 7,718 crore and profit declining 64 per cent to Rs 206 crore on higher forex losses and higher raw material costs.

IT companies set the right tone at the beginning of the earnings season as strong order flow from the US and Europe coupled with currency depreciation benefits drove their earnings.

Rupee depreciated 8 per cent during the quarter and hovered around the 54 mark against the US dollar, which helped top IT companies command higher billing rates. Besides, clients in the US and other geographies continued to push outsourcing works, which helped companies to maintain their margins.

While top lines of top three IT companies rose 28-37 per cent, profit after tax rose between 10 per cent and 33 per cent. However, the IT firms continued to remain cautious on future earnings outlook given the lingering debt crisis in Europe and economic uncertainty in the US.

Banks brought in a mixed bag with private players such as HDFC Bank, Axis Bank, IndusInd Bank and Kotak Mahindra Bank delivering some impressive numbers.

HDFC Bank reported 21 per cent YoY growth in loans and deposits on higher growth in retail loans. In case of Axis Bank, strong fee and trading income helped net profit rise to Rs 1,100 crore, which was ahead of expectations.

“The key risks that could keep our Rs 539 price target for HDFC Bank from being achieved are higher credit costs, slowing growth and margin compression, potentially due to intensified price competition for savings bank deposits in the mass affluent consumer segment, which is HDFC Bank’s focus,” said Anish Tawakley of Barclays Capital, who has a buy recommendation on the stock.

“HDFC Bank’s numbers were in line, but Axis Bank surprised on the upside,” said Sanjeev Zarbade, vice-president (PCG research) at Kotak Securities.

However, results of PSU banks such as Canara Bank, Bank of India and Bank of Baroda were not in line with expectations as a sharp rise in sticky assets and higher provisioning dented margins.

“Bottom lines of several PSU banks continued to remain under pressure due to rising non-performing assets that kept earnings under pressure,” said Destimoney’s Bandyopadhyay.

Although engineering and construction major Larsen & Toubro reported earnings in line with Street expectations, results of Bhel and Kirloskar Industries showed a slowdown in order flow while higher input costs continued to pinch margins.

Brokerage Emkay Global Financial Services has maintained ‘accumulate’ rating on L&T, citing strong order book positions.

Bhel’s order inflows during April-December of FY12 at Rs 13,300 crore was not so encouraging, Emkay Global said in a note to clients.

In the oil & gas space, Reliance Industries reported a disappointing set of numbers on strong margin pressure in both refining as well as petrochemical businesses. The company’s other inco-me that rose to Rs 1,700 crore helped stall the decline in YoY net profit growth at 13.6 per cent to Rs 4,440 crore.

“Going ahead, we remain cautious on refining and petrochemicals margins on the back of new capacities and/or weakening demand. We downgrade our recommendation on RIL to ‘accumulate’ and a cut our target price to Rs 913,” Emkay Global said in a note.

(With inputs from Ravi Ranjan Prasad)

prasannadeshpande@mydigitalfc.com