An analysis of the second quarter results for FY2019 has been very encouraging. We restricted our sample to the universe of companies constituting the NSE100 index. As of today, 81 out of 100 companies have declared their results. There has been a clear increase in sales across the board. At a consolidated level, the aggregate topline of all companies has grown by 20%, year on year (YoY). Guess which company has posted the highest growth? It's GAIL, with a sales growth of 55%! Unfortunately, GAIL is probably not on most peoples’ radar. The second highest is Reliance, at 54%.
This has been, perhaps, one of the best of the last 6 quarters, in terms of sales growth. Also, this growth is quite broad based. 49 companies out of 81 have shown a YoY growth of more than 15%! Out of these 49, 41, yes 41, companies have also shown a QoQ positive sales growth! Only 6 companies have shown negative sales growth, 2 of them being pharma companies.
However, a cursory glance at the bottomline comparison shows mixed signals. The aggregate PAT of 81 companies has grown by just 1.53% YoY and 2.08% QoQ. The risk in comparing aggregate figures is that the outliers tend to get buried. The drops in profits/losses posted by some of the banks, oil and pharma companies has cancelled off the gains in profits made by the steel companies, private banks, NBFCs and IT companies. 38 companies have shown a YoY PAT growth of more than 15%. And 28 of them have shown a positive QoQ PAT growth.
We decided to look at what we call ‘The 4 on 4 %’ criterion, i.e., which companies have shown a positive growth in all 4 parameters - YoY and QoQ growth in sales as well as YoY and QoQ growth in PAT. This is a good parameter to see if any particular industry is breaking out. The performance of some companies jumped out at me, pleasantly surprising me.
ResultsDLF displayed the biggest green shoots. Sales have grown 35% YoY and 42% QoQ (best in the last 6 quarters); profit stood at Rs 374 crore (best in more than 8 quarters, adjusting for exceptional items). And it’s available at near book value.
Biocon posted the highest sales in more than 10 quarters and the highest operating profit, even after adjusting for an exceptional gain of Rs 188 crore. It continues to be a bright spot in the dismal pharma world.
GAIL had a 50% YoY and 56% QoQ PAT growth as the operating leverage kicks in on the back of the highest ever quarterly sales in the last 5 years!
The IT companies deserve a mention here. Despite talk of serious headwinds in terms of H1B issues and AI, these companies have been able to grow satisfactorily, with an average sales growth of 15-20% and PAT growth of 5-10%, except perhaps for Wipro. In fact, the IT midcap space has seen healthier growth, with companies like Mindtree, NIIT Tech (though not part of this sample) posting healthy sales and profit numbers.
Other companies in the ‘The 4 on 4%’ worth researching further are BEL and Concor.
The life insurance trio grew their toplines by between 20 to 40%, with their bottomlines lagging behind in growth as they continue to invest in their businesses.
Of course, the usual suspects in the ‘Always growing, Always costly’ category - HDFC Bank, Bajaj Finance, HDFC, TCS, Kotak Bank etc., continued their march forward.
We are getting this inkling that the spring time of stock picking is just around the corner!
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