Over the past few months, D-street has been grappling with high inflation, high interest rates and a global economic slowdown, all of which can scuttle demand and stifle profit growth rates. Investors are wondering: how will it all affect long-term profitability of companies? They can take a cue from the first quarter results of companies. Broadly, these have been in line with analysts’ expectations— a squeeze in operating margins due to rising input costs resulted in a net profit growth of around 17.2 per cent this first quarter, down from about 25.6 per cent in the corresponding quarter last year. Yet, several companies have not only posted impressive numbers this earnings season but also given clear earnings guidance over the next few quarters. For investors, it’s time to sift the grain from the chaff and scout for companies that can continue their good performance.
Here are a few stocks that have sprinted ahead of the market in the first quarter.
This bank is poised to deliver strong growth going forward, given its impressive first quarter results in 2008-09. Its net interest income rose by 80 per cent to Rs 810 crore yearon-year. Advances in the quarter under review grew a healthy 48 per cent and low-cost CASA (current account and savings account) deposits grew 55 per cent over the corresponding quarter last year.
The bank estimates that it will clock over 40 per cent growth in advances in 2008-09, which is above average growth rates. Besides, the bank is also comfortably capitalised, with a capital adequacy ratio (CAR) of 13.3 per cent, which should sustain its growth rates over the next two years. Says Hitesh Agrawal, Head-Research, Angel Broking: “We believe Axis Bank is a good inclusion in one’s portfolio considering its fundamentals and its valuations.
Its pluses are an attractive CASA deposit franchise, relatively low-risk lending franchise, multiple sources of sustainable fee income, strong growth outlook and Alist management”.
Satyam Computer has outshone its competitors in the first quarter as its consolidated revenues (Rs 2,621 crore) grew an impressive 8.5 per cent over the preceding quarter. It also posted a decent volume growth of 3 per cent in a challenging environment. Says Agrawal: “Satyam has consistently recorded industryleading volume growth rates over the past two years, reflecting the impressive success of its client mining efforts and its leadership in enterprise solutions. We continue to rate the stock as our top pick in the sector.”
The rapid growth in retail has spawned the need for automatic identification and data capture solutions (AIDC), popularly known as bar codes. Bartronics India enjoys a pre-eminent position in the Indian AIDC segment. And reflecting the strong growth in its core business, in the first quarter of 2008-09, the company clocked an outstanding 370 per cent growth in revenues to Rs 120 crore over the corresponding quarter last year. Bartronics has also been expanding globally and, in particular, is scaling up operations in its smart cards business. The company is starting its own manufacturing facility. Smart cards contributed Rs 40 crore to its revenues in the first quarter and is growing at an average rate over 40 per cent annually. Says Agrawal: “Bartronics is set to ride the strong growth expected in retail to its advantage. The company is also the only smart card manufacturer in India and this segment is expected to grow on strong demand from the telecom, banking and government sectors.”
One of the country’s premier engineering companies, BHEL caters to core sectors of Indian economy like power generation and transmission, industry, transportation and oil & gas. Its first quarter results have beaten the Street’s expectations. Net sales grew 33.9 per cent y-o-y to Rs 4,330 crore and dispelled fears of a slowdown in order execution. BHEL’s power equipment business grew 28 per cent over last year’s corresponding quarter while its engineering segment grew 40 per cent over the same period. Besides, its order intake in the last quarter grew 29 per cent, taking its total outstanding orders to a Rs 95,000 crore. Says Ajay Parmar, Head, Institutional Research, Emkay Global Financial Services: “BHEL is taking steps in the right direction to address issues of supercritical order, are increasing pace of execution and expanding capacity. Faster execution of delayed orders shall also improve nearterm earnings growth.”
The premier manufacturer of diesel engines has impressed with its first quarter results. Revenues rose 30.4 per cent to Rs 700 crore over the same period last year. Its engines segment notched up revenues of Rs 610 crore, an increase of 25.4 per cent over last year. But what has wowed analysts is its generator rental business and its captive power plant manufacturing division: these grew a solid 78 per cent to Rs 99.2 crore over the same quarter last year. Despite high raw material prices, margins were stable as a depreciating rupee and a higher rental income contributed to its operating profits. Around 30 per cent of the company’s revenue comes from the export of engines. Says Parmar: “The company should sustain its earnings momentum and the stock is a good pick for retail investors.”
Sesa Goa is India’s largest exporter of iron ore in the private sector. For the past five decades, the group has been involved in iron ore mining, beneficiation and exports. But the soaring demand for steel and construction has led to a higher demand for iron ore across the globe. Iron ore prices too have held up firmly at over Rs 3,400 per tonne. The company’s first quarter numbers beat expectations by a huge margin. Net sales jumped 151.4 per cent to Rs 1,300 crore over the same quarter last year, and net profit soared to Rs 630 crore, up a whopping 382 per cent over last year. It has shown a significant iron ore volume growth of 47 per cent over the same quarter last year. Says Parmar: “Given the strength in iron ore prices, coupled with strong volume growth, we are positive on the stock.”
Steel giant SAIL added another feather to its achievements in the first quarter of 2008-09. It notched up its best-ever first quarter 2008-09 tonnage sales at 2.7 MT of steel during this quarter and also recorded a substantial growth in the sales of value-added products and special steel. That has taken its first quarter net sales to Rs 11,029.4 crore, up 37.2 per cent over the same quarter last year. Despite higher input costs, particularly coal and coking coal, net profits increased to Rs 1,835.2 crore, up 20.2 per cent over the same period last year. SAIL has chalked out ambitious growth plans. Says Ashok Jainani, Head, Research, Khandwala Securities: “The company plans to substantially increase its crude steel capacity. The stock offers a good bargain to investors.”