First profit in 10 quarters; are these smallcaps worth a look?
September quarter earnings brought in another mixed bag for India Inc; while auto, pharma, oil marketers (OMCs), paints and select financial firms showed stress; metals, IT and consumer staple companies delivered stellar performance.
Among them, eight companies reported their first profits in 10 quarters, showing signs of an eminent turnaround. They included Bank of Maharashtra, Impex Ferro Tech, Yashraj Containeurs, STI India, Sonal Adhesives, Real Strips, Simplex Realty and Veejay Lakshmi Engineering Works.
Are these turnaround stories worth a look? Some of these stocks have already started rallying. Sonal Adhesives is up 16 per cent so far in 2018. Some of the others have plunged between 38 per cent and 45 per cent.
Analysts warn investors against jumping the gun. Some of these companies may have seen a boost to bottomlines because of one-time gains, cost cutting or debt reduction and investors should wait to see their performance for one more quarter of two.
“There can be a couple of reasons for loss making companies reporting surprise profits. There could be a one-time other income, forex gains, sale of assets or revaluation of inventory. If you are an investor, you must understand why there is profit after a long period of losses. Then, you have to do certain diagnosis and judge whether it is sustainable. You also need to look at cash flows, quality of management and other key things,” said Gaurav Dua, Head of Research at Sharekhan.
State-owned Bank of Maharashtra reported Rs 27 crore profit for the quarter ended September 2018 against net losses of Rs 23.24 crore in the year-ago period and Rs 1,119 crore in June quarter. That, even when total income slipped to Rs 3,192.80 crore from Rs 3,303.62 crore in the same quarter last year.
Asset quality remained subdued with gross non-performing assets (NPA) climbing to 18.64 per cent this September quarter against 18.54 per cent in the year-ago period.
Impex Ferro Tech posted Rs 0.80 crore profit for the quarter against Rs 2.70 crore loss in the same period last year, Rs 32.30 crore in March quarter and Rs 7.50 crore loss in June quarter.
Net profit of Yashraj Containeurs stood at Rs 1.50 crore in Q2 against a net loss of Rs 2 crore during Q2FY18. STI India reported net profit of Rs 4.90 crore against a net loss of Rs 1.20 crore in the same period last year.
Sonal Adhesives and Real Strips posted net profit of Rs 0.40 crore and Rs 9 crore, respectively, for September quarter against net losses of Rs 0.40 crore and Rs 8.70 crore, respectively, in the same period last year.
Its the same story with Simplex Realty and Veejay Lakshmi Engineering Works.
Barring Yashraj Containeurs (up 74 per cent), STI India (up 85 per cent) and Real Strips (up 40 per cent), other companies posted up to 67 per cent drop in top lines in Q2 on a year-on-year basis.
Camlin Fine Sciences also posted its first profit in nine quarters at Rs 1.30 crore against Rs 4.10 crore loss in the same period last year. Net sales grew 37.80 per cent YoY and 11 per cent QoQ in September quarter.
Camlin Fines key segments reported revenue growth and sustained operational performance. “We expect acceleration in the pace of performance improvement in H2FY19 and maintain our previous target price of Rs 183, with a buy rating,” Emkay Global said in a note.
Among others, Reliance Communications, Oriental Bank of Commerce (OBC) and Jamshri Ranjitsinghji Spinning & Weaving Mills also posted first profits in eight quarters.
Debt-ridden Reliance Communications reported a consolidated profit of Rs 1,141 crore on account of one-time gain from business structuring and non-provisioning of interest to be paid to lenders. The company had posted Rs 2,712 crore loss for the same period last year. OBCs profit jumped to Rs 101.70 crore from a loss of Rs 1,749.90 crore in the same period.