Cooling commodities warm Q4 earnings

The rebound in net profits is likely to have been driven by a decline in raw material costs.

- Ujjval Jauhari

The benefits of easing commodity costs are visible and lower costs mean companies are seeing margin improvement, leading to improvement in earnings, said analysts.

Data of 272 companies, excluding banks and financial entities, analysed by Mint shows that net profits have improved 27.75% sequentially, though they are still 5.7% lower year-on-year (y-o-y).

“Early trends suggest a good earnings season with the majority of companies surpassing estimates," said Sushant Bhansali, chief executive officer, Ambit Asset Management.

The 25 Nifty companies that reported results showed double-digit earnings growth, but if one excludes firms in the commodities space, the growth shoots up to 21%, said Bhansali.

The earnings are being driven by an improvement in operating performance, even while net sales have risen only 1.25% sequentially, suggests data seen by Mint.

On a y-o-y basis, net sales for 272 companies have grown 7.5%, the slowest in the last nine quarters.The slow revenue growth indicates that the inflationary impact driving revenue growth earlier is now easing.