Tuesday, December 3, 2013

Are Indian Quarterly Results Trustworthy?

Just over a month from today, Q3 numbers will start rolling in. But as quarters are passing by, the rolling in is getting slower and slower. So slow, that it has been only a few days since many companies finally filed their Q2 numbers. No, not just the penny stock types, but heavyweights like MRF, Unitech, Motilal Oswal, & Gitanjali Gems.

Mind you, the quarter they are reporting about now is July-August-September, with the reporting period ending a good two months back. MRF can be excused because July-September is their year ending quarter i.e. Q4 and not Q2 as for most other companies. But what about Unitech, Motilal, and Gitanjali?

The writing on the wall is clear. While in crisis, many companies tend to suppress sharing information for the maximum possible period. Gitanjali promoters are facing a SEBI probe for price rigging, Motilal Oswal has been hit with NSEL scam, and Unitech has been in the quicksand of debt coupled with realty sector woes.

Q2 opened with a bang and ended with a whimper. Not only Q2 but all quarters has been showing this trend for some time now. This time around, it started with Infy’s boom and SBI’s sob.

In fact, Infosys started one end of this trend - publishing results soon after the reporting period ends - long back when it became super-confident about its own capabilities including its transparency. It is remarkable that despite coughing out Rs. 214 crore to US SEC to settle alleged visa fraud recently, and despite being outsmarted by TCS for many quarters, Infy is continuing this great tradition.

And in this Q2, back-as-de-facto-CEO Murthy had all the reasons to deliver results in time - helped also by rupee’s fall, Infosys had great numbers to share.

Apart from Infosys, the beginning point of the results timeline is nowadays shared by new claimants for the high-transparency high-growth philosophy. IndusInd Bank is the perfect example of recent times.

The other end of the quarterly results timeline has had many claimants historically. Their philosophy has been simple. If our results are bad, wait the maximum before burdening our beloved shareholders with the damning news.

That way, at least the wait of the fan boys for the next quarter - where fan boys (again!) definitely expect a turnaround - is reduced. Because, by the time these kind of companies come up with their Q2 numbers, it would have been time for Infosys and IndusInd to sound their Q3!

Traditionally, this end of the timeline has been an overcrowded space. In fact, if SEBI - like a school principal - hadn’t mandated that all listed companies should go home with their progress reports within 45 days, many companies wouldn’t have bothered to show their progress cards to their parents a.k.a. shareholders, at all.

That explains the mad rush at BSE/NSE around November 15th which was the deadline this time around to file Q2 numbers. The week ending November 15th usually witnesses the famed penny stocks of our times - the Cals Refineries and the Karuturi Globals of the market filing their results. So, what is a company like State Bank of India doing by publishing its results on November 13th?

In this age of ATMs and core banking is it that difficult to publish quarterly results within a week’s time for a bank, even if it is too big, even if it is ‘too big to fail‘? Mind you, if there is one business today that is capable of knowing where it stands today, where it’s financials stands at this right moment, it is banking.

There must be some kind of a red switch at SBI’s headquarters, which when pressed should reveal Q2 results on September 30th itself. But what if those who are privileged to press that switch and see the results, won’t share it with fan boys nor critics?

Jokes aside, it is not only a case with SBI, but with most banks, NBFCs, tech firms, and practically any company that is technologically up-to-date. The technology today is as such.

But sadly, regulations today, is not as sharp. Earlier, companies had to publish audited quarterly results within 60 days. But since the last regulatory change, companies have to publish only un-audited results within 45 days, and audited results can take any time, with the only condition being that it has to be published as soon as Board of Directors approve the audited numbers.

Needless to say, since that change, the bulk of what we are seeing today as quarterly numbers are un-audited figures.

One of the most often repeated jokes in stock discussion forums is still funny. “Why is ABC Company not publishing its quarterly numbers?,” asks a concerned novice in a message board. To which, a fan-boy-turned-bitter-critic of ABC replies, “Wait, cooking takes time!”

Despite all these criticisms, quarterly numbers are still the most relevant market-movers of our times, if not for anything else, the fact that shareholders doesn't have anything else to rely on.

What is Q2 after all? It is basically the most important cue to how Q3, Q4, and beyond will pan out. That is why analysing quarterly numbers are still important.

Anyway, some things regarding quarterly numbers may get better from here eventually as SEBI is planning to force all companies with subsidiaries to publish consolidated numbers every quarter, and not standalone figures.

Also, it makes sense to identify not only winners, but remarkable losers as well, to see if there can be a turnaround in the distant horizon. And needless to say, stocks are best bought low, and sold high, and not vice versa. The only case where it doesn't apply are, of course, in penny stocks, which are trading close to their face-values or even less, and as such are easily manipulated by promoters or operators.

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