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It’s not a gloomy picture for every company. Some companies have not only been able to buck the trend, but they have also surprised the Street on the profit front for the September 2013 quarter. Many of them have also seen their earnings estimates being upgraded by analysts as well as higher expectations on the share price front. Based on results estimates of 165 large and mid-cap companies, for which data was available, and for which results have already been announced, here are six companies that stand out.
Asian Paints surprised the Street with better than expected earnings backed by higher volumes in the decorative paints segment and in markets such as Asia and the Middle East. The company’s income from operations grew 18 per cent year-on-year to Rs 3,115 crore. Savings in raw material cost due to lower prices boosted its operating profit margins by 174 basis points to 15.6 per cent, and operating profit to Rs 511 crore. In the coming quarters as well, higher demand from both the domestic and international markets, gains led by higher market share and benefit of lower raw material prices will drive the company’s earnings. While the Street remains positive on prospects in the near term, analysts believe high valuations could limit upside for the stock, which they believe can be considered on correction.
Dr Reddy’s results for the September quarter got a boost from strong sales performance from niche launches as well as robust numbers from existing basket of products in the US and volume growth in CIS countries. Higher revenue growth, favourable currency and lower tax rates helped the company beat analyst estimates for net profit by almost 40 per cent. Given the strong results, analysts have revised upwards their earnings per share estimates for the current fiscal as well as FY15 by about 10-15 per cent. The confidence in the stock comes from the company's strong product pipeline and focus on niche, low competition drugs.
Maruti Suzuki: Cost reduction initiatives and forex gains helped India’s largest passenger car maker to deliver strong margins and net profits which were above analyst expectations by almost 20 per cent. Though forex gains boosted margins, Citi Research analysts believe that 150-200 basis points of margin improvement is sustainable. Cost reduction is largely on the back of localisation, better negotiations with suppliers and yield improvement. Analysts are bullish on the stock due to its excellent performance in a challenging environment. Given the muted volumes estimated for the fiscal, the Street will be on the look-out for news on new vehicle launches as well as margin improvement on the back of cost rationalisation as well as better product mix.
GlaxoSmithKline Consumer (GSK Consumer): Analysts expectations were low as a result of weak demand outlook. However, GSK Consumers profits were 196 per cent higher than Street expectations. A key contributor to overall growth was strong volumes. The company reported 17.4 per cent year-on-year growth in revenues to Rs 972 crore, which were along expectations. Though operating margins fell (partly due to higher ad expenses) and depreciation jumped (as new capacities were commissioned), volumes surged. Including exports, volume growth was 12 per cent, while domestic business (93 per cent of total revenues) contributed 10 per cent growth in volumes, the highest in six quarters. Price increases contributed just five per cent to topline growth. The Lower tax rates and higher other income to a large extent helped report strong growth in profits. Backed by demand growth in rural markets, exports and operational gains analysts expect this trend in growth to continue.
Indoco Remedies scored well because of higher growth in international business, which accounts for 31 per cent of revenues. This is despite domestic business remaining under pressure because of the impact of National List of Essential Medicines (NLEM) policy and other regional issues. Nevertheless, the company reported strong 220 basis points spurt in operating margins at 16.3 per cent due to better product mix and lower R&D cost, which helped it beat Street expectations. In the coming quarters as well, expect the trend to continue. "The management has maintained its FY15 guidance of Rs 1,000 crore revenues and expects 2H’FY14 to be better as 1H’FY14’s delayed revenues would bunch up in the period," said Runjhun Jain who tracks the company at Nirmal Bang Securities. The company is also expected to launch its own anti-diabetic product, Glimipiride, in the US post the approval.
PI Industries, an agrochemicals producer, surprised the Street even as revenue growth was marginal. The big surprise came from the earnings front, where the company reported net profit of Rs 55.3 crore as against expectations of Rs 34.5 crore. This was largely due to the 530 basis points increase in the operating profit margins, particularly in the domestic business as a result of the low base. The 55 per cent growth in revenues was on account of 132 per cent spurt in sales of custom-synthesis-manufacturing (CSM) segment to Rs 244 crore. In the agriculture chemicals business, it reported 12 per cent growth in revenues. Taking the cue, analysts have further raised their estimates and expect more gains in the coming quarters.
