Indian profits impress
The Indian market outperformed the rest of Asia in January. Carnegie Indienfond rose 2.2% this month.
As faithful readers may have noted, it has been difficult to be impressed by the performance of India’s economy over the past year, including the policy measures intended to improve the weak situation.
However, looking at the reports for India’s third quarter, the strength of profit growth posted by companies is striking (at least by the companies in our portfolio). Without bragging, we can see that HDFC Bank increased its profits by 32% as lending rose by 20%. As usual, loses on bed debt are well under control. Bajaj Finance, which provides consumer credit for the purchase of motorcycles and white goods, increased its profit by 52% and its lending rose 35%. Even Kotak Mahindra Bank reported good numbers, with profit up 23%.
Asian Paint also provided strong results, with profit 20% higher. Infosys was a pleasant surprise when its profit rose 24% in a weak global climate.
Despite price pressure in the US, pharmaceutical company Dr Reddy’s Laboratories reported a 24% profit gain. This was explained by success in its domestic market and other emerging countries, alongside good cost control.
Earnings for Ultratech Cement were up 25% despite a lack of sales improvement. It was helped this year by better capacity utilisation and tighter price discipline. Acquisitions of capacity made in prior years are also starting to boost profitability.
Hindustan Unilever, which sells consumer goods like soap, detergent, shampoo and even food, delivered a good profit even though India’s consumption slackened overall. Its sales were up 5% and operating profit was 12% higher thanks to a better margin trend.
The conclusion is that it is possible to identify well-performing companies, even in a tough economic climate. Our focus on well-run companies with good management, a strong business concept and low debt is yielding results.