Equity investing requires knowledge and acumen to read and analyse the financials of a company. The ability to analysis financial numbers, ie the balance sheets, profit and loss and cash flow statements, with fair accuracy, is a combination of art and science. An earnings season is exactly the time when these skills are put to test.
The Q2FY20 results season bears significance as the positive impact of corporate tax cut starts reflecting in this quarter. Another important aspect to note is that there is a definite improvement in market sentiment after almost 18 months of pessimism.
This season threw some positive results, some negative, and some flat results, as is usually the case with results across seasons. Several small-cap companies and micro-cap companies were seen reporting high profitability jumps.
In the large-cap space, the HDFC twins once again managed to impress. Particularly HDFC has outperformed earnings estimates.
Among pharma companies, Dr. Reddy's and Cipla managed to surprise investors positively.
Several pharma companies declared positive results for Q2FY20. Investors can finally hunt for opportunities in the pharma space with earnings getting revived for pharma companies across market capitalisations.
In the Nifty basket, 28 companies have declared results as we go on print. Out of these, 10 declared growth in net sales and net profits on both QoQ as well as YoY basis.
Nifty has inched up 12.8 per cent over the last 1 year period, while the average return of these set of 10 Nifty stocks with growth in net sales and net profits has been of 25 per cent.
In the mid-cap space, we identified eight stocks that have grown consistently. On an average, these stocks have shown a growth in net sales and net profits on both QoQ and YoY basis and have generated 11 per cent returns whereas the BSE Midcap index is up by a meagre 1.11 per cent.
Small caps: We find that out of all the results declared for small caps there are nearly 46 small-cap funds which have shown consistent performance. The below table consist of small-cap stocks where the net sales and net profits has increased on both QoQ and YoY basis.
We find that the average 1-year return for these small cap stocks has been 18 per cent, while the BSE Small Cap index posted a negative 5.44 per cent return for the same period.
Real estate sector
The real estate sector is facing quite a challenging time. In the second quarter of the current fiscal year, project launches continued to decline. Also, real estate developers’ attempt to arrest the decline in home sales has failed to yield the expected results. During the quarter, home sales also fell by 25 per cent compared to the same quarter of the previous fiscal year. QoQ comparisons suggest a decline in both, sales and launches, pointing a fall of 23 per cent in home sales and 32 per cent in new launches. Despite the government’s efforts for a solution to the ongoing NBFC credit issue, which has dried up financing for real estate developers as well as buyers, the sales numbers fell as buyers postponed their purchases to time it with the festive season. During Q2FY20, 61679 fresh units were launched, of which, 33,883 were new homes. Of these, 41 per cent fell under the affordable housing category, ie units priced at Rs. 45 lakhs or below. A maximum numbers of these units were launched in Pune and Mumbai.
In the real estate sector, PSP Projects reported positive results for Q2FY20. On a consolidated basis, the company's net sales for the quarter stood at Rs. 312.11 crore, which is an increase of 47.18 per cent as compared to net sales of Rs. 212.06 crore in Q2FY19. For Q2FY20, PSP Projects clocked a 87.77 per cent rise in net profit to Rs. 32.46 crore as compared to Rs. 17.29 crore in Q2FY19. Growth drivers for the sector come from low-cost housing, smart cities, and commercial realty.
The banking sector, which is seggregated into private and public categories, is a key indicator of the state of the economy. The sector, though, in the last three fiscal years, faced issues of toxic loans. Banks' non-performing assets (NPAs) increased and recovery was low. This led to higher provisioning and stressed net profit figures. In recently concluded Q2FY20 banks reflected a sign of improvement with a few surprises on account of lower NPAs. For example, ICICI Bank reported a decline of 37 per cent in provisions and a contraction of 217 bps in gross NPAs.
The private banks showed a mixed trend during the quarter under review. The biggest positive came on account of improved asset quality. ICICI Bank, Dhanalaxmi Bank, Axis Bank, Bandhan Bank, AU Small Finance Bank etc showed a declining trend in NPAs.
The largest private sector in terms of market capitalization, HDFC Bank, reported robust profit growth of 61 per cent on a YoY basis. Its gross NPAs stood at 1.33 per cent as compared to 1.29 per cent in the earlier quarters. Kotak Mahindra Bank's reported gross NPAs stood at 2.32 per cent as against 2.19 per cent in earlier quarters. While provisions stood at Rs. 408 crore against Rs. 316.8 crore (QoQ) and Rs. 354 crore (YoY). the CASA ratio rose substantially to 53.6 per cent from 50 per cent on a YoY basis, which can be positive for its credit cost.
The banking sector, during the quarter also were subject to change in tax brackets, after the recent corporate tax cut by the finance minister. ICICI bank saw 28 per cent YoY fall in net profit due to change in DTA changes, but the asset quality of the bank, though, improved substantially. The bank's gross NPA stood at 6.37 per cent, which came down from 8.54 per cent in the corresponding quarter of last fiscal. Yes Bank continued with its deterioration in asset quality. Its gross NPA rose to 7.39 per cent from 5.01 per cent in the previous quarter. The bottom line was impacted due to a jump in provisions of Rs. 1,336 crore from Rs. 939 crore on a YoY basis. It reported a net loss of Rs. 600 crore as against a profit of Rs. 964.70 crore during the year ago period.
In case of public sector banks, SBI came up with robust results for the second quarter of FY20. Improvement in asset quality and strong growth in advances in comparison to previous quarter is the biggest take away from the quarter. The bank's NIM stood at 2.73 per cent, which increased from 2.47 per cent during the sequential previous quarter. SBI registered an advances growth of 13 per cent.
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