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It’s not a gloomy picture for every company. Some have not only bucked the trend but surprised the Street by reporting good profit numbers for the September quarter. Many of these firms have also seen their earnings estimates and share price outlook upgraded by analysts.
Among the 165 large- and mid-cap companies that have announced their results so far and earnings estimates for which are available, the performance of six firms seems to stand out.
Asian Paints
Backed by higher volumes in the decorative paints segment and in markets like Asia and West Asia, the company surprised the Street with better-than-expected earnings. Its income from operations grew 18 per cent on a year on year basis to Rs 3,115 crore. Savings in raw material cost due to lower prices boosted operating profit margins by 174 basis points to 15.6 per cent and operating profit to Rs 511 crore.
In the coming quarters, too, higher demand from both domestic and international markets, gains led by higher market share and benefit of lower raw material prices are expected to drive the company’s earnings. While the Street remains positive on prospects in the near term, analysts believe high valuations could limit upside for its stock, which they believe can be considered on correction.
Dr Reddy’s
The pharma major’s financial performance in the September quarter got a boost from strong sales — after niche launches — as well as robust numbers from existing basket of products in the US and volume growth in CIS (Commonwealth of Independent States) 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 quarterly numbers, analysts have revised upwards their earnings-per-share estimates for the current as well as next financial year by 10-15 per cent. The confidence in the stock comes from the company’s strong product pipeline and focus on niche and low-competition drugs.
Maruti Suzuki
Cost reduction initiatives and forex gains helped India’s largest passenger car maker deliver strong margins and net profits that exceeded analysts’ expectations by 21.6 per cent. Though forex gains boosted margins, Citi Research analysts believe 150-200-basis-point improvement in margins is sustainable. Cost cut is largely on the back of localisation, better negotiation with suppliers and yield improvement.
Analysts are bullish on its stock due to the firm’s excellent performance in a challenging environment. Given the muted volumes estimated for the financial year, the Street will be on the lookout for news on new launches and margin boost on the back of cost rationalisation and better product mix.
GSK Consumer Health
Given a weak demand outlook, analysts’ expectations on the company’s performance were quite low. But GSK Consumer exceeded the Street estimates on profits by 194 per cent. Strong volumes were a key contributor to its overall growth. The company reported 17.4 per cent year-on-year growth in revenues to Rs 972 crore — 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 to volume growth — the most in six quarters.
Price increases contributed just five per cent to topline growth. Lower tax rates and higher other income helped, to a large extent, report strong profit growth. Analysts expect this trend in growth to continue, backed by a strong demand in rural markets, exports and operational gains.
Indoco Remedies
The company scored due to high growth in international business, which accounts for 31 per cent of its revenues. This was despite domestic business remaining under pressure because of the impact of National List of Essential Medicines (NLEM) policy and other regional issues. The company’s operating margins, nonetheless, surged 220 basis points to 16.3 per cent — mainly on the back of a better product mix and lower R&D cost. The Street expects the trend to continue in the coming quarters as well.
“The management has maintained its 2014-15 guidance at Rs 1,000-crore revenues and expects the second half of 2013-14 to be better, as the delayed revenues from the first would bunch up,” 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 after it gets regulatory approval.
PI Industries
The company, an agrochemicals producer, surprised the Street, even as there was only a marginal rise in its revenue. On the earnings front, the company reported net profit of Rs 55 crore, against expectations of Rs 35 crore. This was largely on account of a 530-basis-point increase in operating profit margins, particularly in the domestic business, because of a low base.
The 55 per cent growth in revenues was due to a 132 per cent spurt in sales in the custom-synthesis-manufacturing segment to Rs 244 crore. In the agriculture chemicals business, its revenues grew 12 per cent. Following the good show, analysts have further raised their estimates and expect more gains in the coming quarters.
