India Inc is on a roll. Admittedly the evidence is scanty - out of the 1,209 companies listed on the National Stock Exchange, barely 70 had declared their quarterly results at the time we went to press.

On an aggregate though, they racked up a net profit growth of an unbelievable 129 per cent year-on-year. Only nine of the companies reporting results had seen a drop in profitability.

Infotech

The results season kicked off, as always, with Infosys numbers coming in on 13 April. The company's turnover was up 36 per cent year-on-year, as were net profits. Despite this, the market responded less than enthusiastically, and the stock closed the day at Rs 2,088, down more than 12 per cent from its February high.

Earnings per share for the financial year just ended were Rs 67.93, which meant that the share was selling at 30.55 times earnings. Barely three months earlier, when third quarter profits were announced on the 11 January, earnings per share for the trailing 12 months was Rs 58.44, and the share had closed at Rs 2,183 for a PE ratio of 37.35.

The same story was repeated across the sector. As the other top five IT exporters reported their numbers, it was evident that the growth impulse is strong, and customers are willing to sign off on higher billing rates. But, even as these strong numbers streamed on to the tickers, so did a different kind of strength-that of the rupee.

Bang in the middle of the earnings season, the rupee notched up a 9-year high against the dollar, causing investors to wonder how long IT firms would be able to maintain margins in the face of unfavourable exchange rates. Correspondingly, PE ratios sagged, though in no case as alarmingly as for Infosys.

 

Performance card
Company	Total income	PBDIT	PAT	Growth in PAT (y-o-y)
TCS	4,193.64	1,337.45	1,078.76	43.82
Wipro	3,874.40	970.4	818.9	24.55
Infosys Tech	3,679.00	1,269.00	1,124.00	69.28
Satyam Services	1,743.07	475.19	397.5	37.12
ACC	1,723.18	555.49	363.75	54.51
UTI Bank	1,667.87	1,324.84	211.89	39.65
Petronet LNG	1,571.87	232.17	106.03	60.29
MRF	1,087.15	104.98	35.74	511.99
HCL Tech	1,023.37	296.41	238.59	77.05
National Fertilizers	818.14	107.19	49.95	469.56
For March 2007  All figures in Rs Crore  PBDIT: Profit before dividend, interest and tax  PAT: Profit after tax;  y-o-y: Year on year

High-impact stocks
	PE	PE	Change
Company	1-Feb-07	20-Apr-07	(%)
India Cements	14.76	8.36	-43.36
iGate Global Solutions	37.23	21.65	-41.85
ACC	18.51	12.66	-31.6
Prism Cement	9.06	6.41	-29.25
CMC	36.76	27.26	-25.84
UTI Bank	25.47	19.88	-21.95
Infosys Technologies	38.13	31.08	-18.49
Wipro	33.45	29.29	-12.44
Tata Consultancy Services	37.27	33.4	-10.38

Cement
The early birds in the cement sector parroted the story of record profits. Gujarat Ambuja Cement, for example, reported a net profit of Rs 590.8 crore (including 'other income' from its stake sale in ACIL).

Net sales were up 55 per cent y-o-y, to Rs 1,434 crore, and the operating margin was at an all-time high of 39.3 per cent. ACC's sales grew by 25 per cent, while operating profit went up by 57.75 per cent. Net profit also increased 51.51 per cent. Prism Cement posted a net profit growth of 127 per cent.

And like the princess who refused to smile, the markets too refused to be cheered. ACC, for example, now trades at about Rs 790, well below its high of Rs 1,192 in December. Again, if we compare the market price with earnings, there has been a severe compression.

At its peak, ACC was selling at 24.59 times annualised earnings for the latest quarter. Today, at Rs 788, the same ratio stands at just over 10.

Same story as IT, but the presumed villain is different. Here it is a suspicion that cement prices have peaked; if higher interest rates bite into construction demand at the same time as fresh cement capacity kicks in, companies will be competing to hold on to market shares, with an inevitable drop in profitability.

Banking
The banking sector tells the same story - performance is up, but prices are down. Only two results are in the bag as we write: UTI Bank and Bank of India. With a net profit of Rs 212 crore for the quarter, UTI has seen profitability improve by 39.65 per cent y-o-y.

Net interest margin, too, is up by 10 basis points, from 2.96 for the March quarter of last year to 3.06 per cent for the quarter just ended. And yet, the share quotes at Rs 460, against a high of Rs 580 this February.

Bank of India's numbers sizzled - net profit was Rs 447 crore versus Rs 254 crore for the same period last year. Yet, the day the quarterly results were announced, the scrip closed at Rs 190, around 10 per cent lower than its January peak of Rs 210. The relatively shallow drop is a merciful concession to the bank's excellent numbers.

Others
It seems as if all the good news has already been factored into these three sectors, and they are now bracing for the bad times. It is cheering, then, to see that the same sentiment does not colour all results.

At just below Rs 1,000, a share of Titan Industries, the Tata group company which retails watches, jewellery and sunglasses, rules close to its all-time high of Rs 1,041. The quarterly numbers were reasonably strong with an EPS of Rs 6.87, compared to the previous quarter's Rs 6.20.

For the full year, turnover was up 44 per cent, and net profit 29 per cent. If one compares this with the performance of the IT sector, Titan's PE ratio seems over-generous at 47 times.
Clearly, the street is awarding a premium for the lower risk attached to the Indian consumer - a theme we think will continue to play out till the dust settles on exchange rate, interest and other macro risks.

Stock Picks Update
Results have come in for two of the companies we had picked in the last six months:

HCL Tech

We had recommended HCL Tech in our 31 December 2006 issue (Growing Chip). With a profit growth of 76 per cent y-o-y, HCL Tech was the star of the Big 5. Unlike Tata Elxsi, though, it has not been able to break through its all-time high.

As we write, HCL Tech trades just below Rs 330, which is below the earlier peak (adjusted for bonus) of just under Rs 350. At this price, it sells at an earnings multiple well under 20. We maintain our BUY rating on the stock.

Tata Elxsi

We recommended this stock at a price of Rs 273.10. The fourth quarter results showed a sales growth of 26 per cent y-o-y, with net profit up 39 per cent. Margins were at their highest for the last six quarters-at 18 per cent net. EPS for FY07 was Rs 16.74.

Thankfully, the share bucked the trend of the IT majors, and saw a new high, closing on 21 April at Rs 329.30. At this level, the share trades at a PE just under 20. The share is a definite HOLD, and if you are willing to take a mid-term perspective, we recommend it as a buy.

Inputs from Koshy Varughese and Rajesh Kumar