Positive Q4 Results
Dalal Street Investment Journal|May 10, 2021
The rising number of corona virus cases and earnings are the factors that may decide the market direction going forward. While the positive results have so far kept market momentum intact, the increasing spread of the second wave of the virus threatens to dislodge the positivity in the markets. Yogesh Supekar analyses the Q4 results while highlighting the hits and misses of the current earnings season while the DSIJ Research Team highlights the sector-wise earnings’ performance this season
Yogesh Supekar

Election results and increasing number of corona virus cases are expected to set the tone for the markets in the near term along with the quality of earnings this season. Indeed, the way the markets have behaved both locally and in the developed world has got investors spellbound. The earnings in the US markets have been more than impressive with stocks such as Amazon, Tesla, Facebook and Google continuing to report above average growth. The US economy is expected to deliver more than 7 per cent GDP growth in FY22 while the recovery in European economies stands to be impressive, especially that of the UK. Chinese economy has also rebounded impressively enough to create optimism and allow the equity prices to remain in the green.

The Indian economy is also expected to deliver higher than 10 per cent GDP growth in FY22, thus giving hopes to long-term investors. While low interest rates, expected economic rebound globally, record GST collection, heightened economic activity in March 2021 are the factors helping the risk on mode to be active, in reality true optimism is infused by superior earnings this season as well. On the earnings front, after two stupendous back-to-back earnings’ seasons, the analyst community was not very excited about the prospects this season. However, the quality of the earnings has been more than satisfactory this season, so far.

If we talk about the Sensex companies that have declared their results till now, only HCL Technologies has been a disappointment. RIL, HUL, Titan, Axis Bank, Bajaj Finance, Bajaj Finserv, ICICI Bank, Maruti Suzuki and Tech Mahindra were able to declare positive results this season. The results of Maruti Suzuki are a reflection of what is happening on the ground. The revenues increased for the automaker indicating that there is latent demand for the products. However, the EBITDA margins decreased, underlying the fact that the rising commodity prices have started to hurt profit margins for automakers. Indeed, the rise in commodity prices is something that has caught manufacturers off-guard.

However, the alarm button is not being pressed yet as the demand situation is healthy and there is increasing demand even at higher prices for the products. Experts believe that there is nothing to worry about as far as the demand scenario is intact. They fear a situation when there is a drop in demand due to multiple regional lockdowns that threatens to disrupt the supply chain of manufacturers and automakers, forcing manufacturers from various industries to struggle to maintain reasonable margins. Such a situation may destroy wealth in the near to medium term.

Ultratech Cement was one of the star performers amongst the Sensex constituents that managed to impress with its Q4 results this season. In the cement space, Dalmia Bharat remained one of the top performers this season with outstanding results. Gujarat Ambuja Cement and ACC Limited were amongst the cement manufacturers that impressed with the Q4 results this season. In the pharmaceutical space, Laurus Labs stood out as one of the best performers, continuing its growth trajectory from the previous two seasons. Ajanta Pharmaceuticals and Syngene International are amongst those pharmaceutical companies to have declared positive results this season.

UTI AMC and ICICI Securities in the financial space managed to impress with their earnings while Rain Industries, Sundaram Clayton and KPR Mills managed to deliver a superior performance during this period. In the small-cap space, some of the impressive performances came from Kirloskar Pneumatic, Tata Coffee, Mastek, Swaraj Engines, Tinplate Company, KSB Pumps, Gateway Distripaks, Schaeffler India, National Standard, India Bulls Real Estate and Filatex India.

SECTORAL ANALYSIS

Pharmaceutical

The Q4 results of FY21 for the pharmaceutical sector companies have been attractive. Considering the key players in this sector, in the fourth quarter of FY21, Divis Laboratories posted a strong increase in net sales of 21.86 per cent whereas Alkem Laboratories recorded an increase of 6.24 per cent in net sales. On the other hand, Glenmark Pharmaceuticals reported an increase of 4.55 per cent and Cadila Healthcare registered a rise of 4.51 per cent in net sales. While Divis Laboratories posted an increase in operating profit by 32.67 per cent, Alkem Laboratories recorded operating profit with an increase of 30.01 per cent. Cadila Healthcare and Glenmark Pharmaceuticals posted a rise in operating profit of 16.23 per cent and 15.25 per cent, respectively.

The greatest rise in net profit was clocked by Cadila Healthcare which was 40.64 per cent followed by Divis Laboratories which registered a gain of 31.06 per cent and Glenmark Pharmaceuticals and Alkem Laboratories which recorded rise in net profit by 30.05 per cent and 18.06 per cent respectively. It is expected that the pharmaceutical sector will remain a hotspot for investors this year as well. The domestic market has already witnessed a huge rally across pharmaceutical sector stocks, but considering the crucial health crisis the country is in, a huge demand can be sensed for medicines and health-related products and infrastructure. Moreover, faster approvals are expected to be obtained for new drugs, foreign partnerships, etc.

Cement

The fourth quarter of the fiscal year is usually the best quarter for cement companies and given the robust YoY volume growth expected due to low base of Q4FY20, this quarter is expected to be no different. Demand across various segments like rural housing, affordable housing and infrastructure was buoyant during the quarter and most cement companies operated at full clinker utilisations across the northern, central and western regions, thereby providing operating leverage. The southern region reported positive demand growth after reporting contraction for a long time.

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