March 10, 2013, 7:23 pm
* Profits up: Banking & Finance (40%);Power & Energy (81%); Plantations (375%); Beverages, Food & Tobacco (18); Telecommunications (7%); Healthcare (153%); Hotel & Travel (28%) = Profits down: Diversified (12%); Manufacturing (11%); Land & Property (17%); Motor (49%)
Listed corporates saw profits grow despite a testing macroeconomic climate, NDB Stockbrokers said in a report, after the depreciation of the rupee and high interest rates hit profits of many companies.
"Total profits of the sample set of 93 companies considered to represent the market which contribute 77 percent of total market capitalization of the stock market, increased by 10 percent year-on-year (this includes 28 companies reporting profits for December while the others reported profits for nine months). Profit levels increased to Rs. 128,142 million from Rs. 116,992 million. On a recurring basis, profits of the sample set of companies increased by 12.5 percent.
"Highest growth was witnessed by the Plantations sector that saw its profits elevating by 375 percent (89 percent adjusted for non-recurring items) from losses recorded in the corresponding period owing to gratuity provisions in FY11/12 and improved tea prices in the global markets in FY12/13.
"Bank, Finance & Insurance sector (40 percent) was the highest contributor to the earnings in absolute terms. The sector recorded a profit growth of 29 percent while the profit growth on a recurring basis 19 percent.
"Meanwhile Food, Beverage & Tobacco ((12 percent), Diversified (12 percent) and Telecommunications (8 percent) sectors came in next in terms of contribution to earnings in absolute terms.
"Several companies made foreign exchange losses due to depreciation of the rupee, which however impacted banks favourably. Meanwhile companies with higher borrowings saw their profits slump as a result of increased finance cost owing to the high interest rate regime that prevailed during the period.
"While profitability compared to the previous year improved from the September quarter (to December quarter), we maintain our previous expectation of overall profits remaining flat in FY12/13," NDB Stockbrokers said.
The banking sector achieved a non recurring profit growth of 49 percent (27 percent on recurring basis) attributed to foreign exchange gains reported by COMB, SAMP, HNB and the Rs. 5.9 billion capital gain from NDB’s sale of its stake in Aviva NDB Insurance. Net interest margins grew quarter-on-quarter which resulted in impressive net interest income although credit growth was restrained during the year.
The insurance sector saw profits grow 26 percent while the profitability of the finance company sector came down 20 percent on a recurring basis and a 3 percent dip in profitability on a non recurring basis.
Credit growth in the banking sector is likely to grow 15 to 20 percent this year with the removal of the 18 percent credit ceiling last December and the sector is expected to post robust growth this year, NDB Stockbrokers said.
The beverages, food and tobacco sector saw profits grow 18 percent with CTC making the highest contribution. DIST saw profits grow 46 percent. The depreciation of the rupee, high energy costs and lower demand due to tighter disposable incomes saw earnings fall for LION, BFL, CARG and CCS.
The diversified sector saw profits dip 12 percent largely due to non-recurring gains recognized during the previous period. (CARS, HAYL and RICH had recognized capital gains amounting to Rs. 4.3 billion in 2011).
Healthcare sector stock saw profits grow 153 percent.
Hotels and travel sector recorded a profit growth of 28 percent despite energy price increases with the currency depreciation mitigating the impact.
Land and property sector saw profits fall 17 percent, growing 71 percent excluding exceptional items.
"If the prevailing high interest rates continue, demand could remain lackluster in the coming year. Further, high supply in residential property could exert downward pressure on prices adversely affecting the sectors performance," NDB Stockbrokers said.
The manufacturing sector saw profits fall 11 percent on high interest rates and increasing energy prices.
The motor sector saw profits fall 49 percent on increasing import taxes and high interest rates.
The power and energy sector saw profits grow 81 percent on a 143 percent growth recorded by LIOC due to increased fuel prices.
Telecommunication sector made substantial translation losses due to the depreciation of the rupee with profits growing 7 percent.