Reading Quarterly Results

A financial year in India runs from 1 April to 31 March. It is split into four quarters: April to June (Q1), July to September (Q2), October to December (Q3) and January to March (Q4). Each listed company publishes its profit and loss numbers for every quarter.

Why does it matter? A kirana owner knows how the shop did only by checking the till every evening. An outside shareholder cannot walk into the company's till. The quarterly result is the closest thing to that daily check. It lets you see, four times a year, whether sales are growing, whether costs are under control and whether the profit is real.

But a quarter is a short window. A wedding-season quarter for a jewellery firm, or a festival quarter for a consumer firm, looks very different from a slow quarter. That is why the rest of this topic is about comparing carefully rather than reacting to a single number.

SEBI prescribes a standard format, so every listed company shows roughly the same lines in the same order. Learn the order once and you can read any result. The illustration above follows one fictitious company, Ganga Speciality Ltd, through the staircase.

Take Ganga Speciality Ltd (illustrative, not a real company) for a quarter. Rs 300 crore of revenue, Rs 225 crore of operating costs (raw material, salaries, other expenses), depreciation of Rs 15 crore, other income of Rs 6 crore, interest of Rs 10 crore, tax at 25 per cent and 10 crore shares. Work down the staircase and check that each subtotal closes.

Both compare the same result with an earlier one. They answer different questions.

Year-on-year (YoY) compares this quarter with the same quarter one year ago, for example July to September this year against July to September last year. It removes the seasonal pattern, so festival quarter meets festival quarter. This is the fair comparison for most businesses.

Quarter-on-quarter (QoQ) compares this quarter with the one just before it. It shows momentum, such as whether things are improving or slowing right now, but it mixes in seasonality. A festival quarter will beat the quarter before it almost every year, and that says nothing special about the business.

Each fails in a different way. YoY can look wonderful because last year's quarter was unusually bad, which is called a low base. QoQ can look terrible only because the previous quarter was a seasonal high. Read both, and ask what made the earlier quarter unusual.

Operating margin (EBITDA divided by revenue) tells you how much of each rupee of sales the core business keeps before interest, tax and depreciation. It is the quickest health check on pricing power and cost control.

Watch the direction over several quarters rather than the level in one. If revenue grows 15 per cent but margin slips from 25 per cent to 22 per cent, the company is selling more and keeping less of each rupee. That can be a temporary rise in raw material cost, a price cut to win volume, or a real loss of pricing power. The result alone does not say which; the management commentary and the next two quarters do.

Margins are only comparable within a sector. A trading business runs thin margins and a software firm runs fat ones. Compare a company with its own history and with close peers, as the topic on Profitability & Return Ratios explains.

A one-off is a gain or loss that is not expected to repeat. It matters because a share is valued on profit that can continue, not on profit that came from selling a plot once.

Take Ganga Speciality again. In a later quarter, it reports profit after tax of Rs 49.5 crore, apparently a 17.9 per cent jump on Rs 42 crore. Look at the exceptional line: a Rs 10 crore gain on selling surplus land. Remove it and profit before tax returns to Rs 56 crore, tax stays at Rs 14 crore, and the underlying profit after tax is Rs 42 crore. Nothing improved in the business. (Tax on the gain is assumed at 25 per cent for simplicity: 66 x 0.75 = 49.5.)

The same test works in the other direction. A large one-time loss, such as a legal settlement, can make a healthy quarter look bad. Adjusting for both sides is fair. Adjusting only for the good ones is not.

Standalone results cover only the parent company. Consolidated results add the parent's subsidiaries (and equity-account for associates) into one picture, as if it were one group. For a company with many subsidiaries, consolidated numbers show the whole business; standalone numbers can leave out most of it.

As a habit, read consolidated first, then glance at standalone to see how much the parent contributes. A large gap between the two, for example a strong standalone result and a weak consolidated one, means the subsidiaries are the source of the problem. Check the segment note for the reason. Also check that you are comparing like with like: consolidated this year against consolidated last year.

SEBI's Listing Obligations and Disclosure Requirements (LODR) Regulations set the timetable, so results do not arrive whenever a company likes. The company must give the stock exchanges prior notice of the board meeting that will consider the results (Regulation 29 asks for at least two working days, excluding the day of notice and the day of the meeting). The outcome must be reported to the exchanges within 30 minutes of the meeting closing (Regulation 30, Schedule III). Quarterly results for the first three quarters are due within 45 days of quarter end, and the last quarter and full-year results within 60 days of year end (Regulation 33).

The results are accompanied by a limited review report from the statutory auditor. This is a lighter check than the annual audit, so unaudited quarterly figures can still be revised later. The full balance sheet arrives half-yearly, and the cash flow statement comes with the annual numbers; Needs verification for the exact half-yearly cash flow rule against the current LODR text.

Why does the schedule matter to you? Results cluster in the last two weeks of the window, so many companies report on the same days. It also means you can look up the date and read the filing yourself on the NSE or BSE site rather than waiting for a summary.

You do not need a screener to read a result properly. Open the filing on the exchange website and work through it in order.

Because the price already contained an expectation. Analysts and investors form a view of the likely result in advance. If profit rises 20 per cent but the market expected 30, the news is a disappointment against the expectation, and the price can fall. The reverse also happens: a weak result that is better than feared can lift the price.

This is not a rule you can trade mechanically. A result can also be followed by a move in either direction for reasons unrelated to it: the market as a whole, a sector news item, or guidance about the next quarter. The result gives you facts about the past three months. The price reaction reflects what people believe about the future, and those beliefs can be wrong in both directions.

A quarterly result is a useful but narrow tool. Being clear about its limits protects you from the most common mistakes.