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| Early birds signal slowdown in earnings growth |
| B G Shirsat & Sameer Mulgaonkar / Mumbai Jul 26, 2010, 00:02 IST |
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It’s raining bad news for India Inc. The early birds — 315 manufacturing and services companies that have announced their first quarter results so far — have shown a sharp slowdown in their earnings growth rate.
While some of the biggest companies and Sensex heavyweights such as Reliance Industries are yet to announce their results, analysts say the trend is more or less clear.
While net sales are up 19.3 per cent in the quarter ended June as against the year-ago period, net profit has declined 40 per cent. Net sales were up 24.4 per cent in the quarter ended March. The steep fall in net profit is mainly due to the dismal results of Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and six other companies. Together, these eight posted a net loss of Rs 5,603 crore.
Operating margins in the quarter under review were also down 460 basis points to 6.38 per cent due to higher cost of production (up 25.7 per cent) and raw materials (up 29.9 per cent).
DISMAL SHOW
Q1 GROWTH RATES OF 315 COMPANIES Figures in % |
Quarter
ended |
Total (315 cos) |
Excl 8 loss-making cos |
| Sales |
Net profit |
Sales |
Net profit |
| 9-Sep |
-13.10 |
Turnaround |
5.56 |
34.49 |
| 9-Dec |
5.35 |
21.60 |
11.68 |
42.32 |
| 10-Mar |
24.42 |
4.68 |
20.92 |
63.78 |
| 10-Jun |
19.28 |
-39.94 |
17.99 |
22.60 |
The picture is much better if the eight loss-making companies are excluded, but even then the numbers are less than previous quarters. Net sales of the 307 profit-making companies rose 18 per cent in the quarter ended June, as compared with 21 per cent in the quarter ended March, while net profit rose 22.6 per cent as against 63.8 per cent.
The sectoral trend shows the remaining oil marketing companies are expected to show big losses on account of higher cost of raw materials. IOC and HPCL together posted a net loss of Rs 5,270 crore in the three months to June, as against a net profit of Rs 4,291 crore in the same quarter of the previous year.
As expected, motorcycle makers have done well, with Bajaj Auto and TVS Motors doubling net profit on the back of strong revenue growth. However, both companies reported margin pressures for the first time in the last four quarters, indicating an increase in input costs.
Auto ancillary units benefited from the booming growth in automobile sales and posted a healthy growth in sales and profit. SKF India, ZF Steering and Automotive Axles saw their net profit more than double on strong growth in revenue.
The performance of the software services firms was surprisingly poor, with the profit growth rate slowing to 14.6 per cent during the quarter, as against 17 to 22 per cent in the previous three quarters. The double-digit growth in revenue compared with single-digit rises in all the three previous quarters indicates revival of demand for IT industry. The dismal profit growth can be attributed to salary rises and appreciation of the rupee against other currencies.
The pharmaceuticals sector which was expected to fare better during the quarter has showed a mixed trend so far. Revenue growth for the 12 companies that have declared their results remains in single digits, while net profit rose 12 per cent. In the previous two quarters, the sector had posted a smart turnaround. Biocon did well, but Dr Reddy’s Labs, as expected, reported subdued performance.
The trend suggests cement, telecom, sugar, plantations and shipping companies will report a decline in net profit during the quarter, while capital goods, chemicals, fertilisers, fast-moving consumer goods and steel firms are expected to show moderate results.
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