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December Results – Nifty Companies Deliver Stunningly Poor Results; Combined Profits Decline over 15%!


Q3 Results are out! All the listed companies have announced their December 2015 Results. Analysts, industry watchers and economists alike have been waiting with bated breath for news of the reported Results to pour in? Were they disappointed? Or would we finally hear some long-awaited good news?

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The last couple of weeks have witnesses some of the most astounding Results reporting by our country’s largest companies. The Nifty 50 reported some of the worst Results that come to mind.

In Q3 FY 2016, Sales went down 2.0%, but Net Profits of the 50 companies combined, declined a shocking 15.11% year-on-year!

If you thought that the previous 2 quarters were bad (Q1 – Flat profits; Q2 – Profits down 2.29%), Q3 has stretched the word ‘disappointing’ to a whole new depth.

Let’s start with the good ones; 27 out of the 50 actually reported increases in Net Profits y-on-y:

  • BPCL with a 170% Profits increase. The company had been able to report such stellar Profits on the back of falling crude prices which reduced their input costs, as well as reduced finance (interest costs).
  • Bosch and Grasim reported 99.11% and 94.72% Profit increases!
  • Couple of great performers in the Banking sector; Kotak Mahindra led the way with a 31.89% Profit growth, followed by IndusInd (29.93%), Yes Bank (25.07%), HDFC Bank(20.12%) and Axis Bank (14.50%).
  • The Auto sector too, witnessed some strong performers – Hero Motors (36.51%), Maruti (27.07%) and Bajaj Auto (4.67%) were standouts.
  • Reliance Industries and Coal India reported strong Profit growths (38.70% and 13.97%) among the Energy companies. PowerGrid too had a 30% profit increase.
  • Infosys, TCS and Wipro in the IT space, with not-so-exciting growths of 6.62%, 4.53% and 1.88% resp.

Some of the biggest culprits of the Q3 Earnings season are:

  • Tata Steel which reported Losses of Rs. 2,127.2 cr. this quarter, as opposed to Profits of Rs. 157.11 cr. for the same quarter last year.
  • Bank of Baroda reported a staggering Rs. 3,342 cr. loss; a far cry from the Rs. 334 cr. Profits that they had reported last year, after RBI forced them to take the loss on problem accounts.
  • PNB and SBI rounded off the poor showing by some of the Banks with a 93.41% and 67.10% decline.
  • BHEL, Cairn and Vedanta posted Profit declines of 618.34%, 99.36% and 98.87% reductions in Profits y-on-y.
  • HCL and Tech Mahindra suffered declines of 0.59% and 5.72% in Profits.

Since these are consolidated results, this will effectively mean that Nifty Profits – on a consolidated basis – are down 15% year on year. On a standalone basis the Nifty earnings are only down 3%, which means much of the muck is in subsidiaries or such.

Our View: The first question one tends to ask is: Have earnings bottomed out? The answer to that is: We don’t know. How do you know earnings are not going to be lower, when earnings have in fact been going down the last three quarters?

Take the banks – they tell us the worst is over. Think about it – they always tell us that. The only person saying that there will be more is: SBI. When banks tell you the worst is over, the worst could actually be ahead. They’ve been saying crazy things the last few years, and finally the skeletons are coming out of the closet. 

The IT Companies – the exporters have abysmal profit growth. Why are we paying them such premiums?

The power and oil companies – many of whom have been hurt by the fall in crude. There is no rocket science in what they do, and they are pure commodity plays. We could disregard them but they are the biggest players in the index!

Vedanta and Tata Steel were scary, and so were ACC and Ambuja, even Airtel. This isn’t a one-timer, really.

Earnings have not bottomed, in our opinion, and we think for that to happen, you want one quarter that’s better than the previous one. Sure, it doesn’t help that we can never predict the exact bottom before it happens, but we’d rather react than predict.


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