'Early-bird' results point to poor profit growth in Q3

India Inc’s net profit is likely to decline in the third quarter (Q3) ended December 2008 if early bird results of manufacturing and services companies are any indicator. The 90 results available so far show a 5.4 per cent decline in net profit despite strong net sales growth of 29.6 per cent.

Sales growth, however, is inflated on account of MMTC, the state-owned mineral metal trading company, which reported a 100 per cent growth in sales and services. If MMTC is excluded from the sample, sales growth drops to 22.1 per cent.

To be sure, net profit growth of the 90 early birds is skewed on account of net losses of over Rs 200 crore each for Bongaigaon Refineries and Jet Airways and sharp declines for Bajaj Auto and MMTC. If these four companies are excluded from the sample, the remaining sample shows 9.41 per cent growth in net profit.

Overall, however, India is expected to do badly in the October-December quarter, especially with earnings of automobiles, oil and gas, real estate and cement firms under pressure on account of falling sales and lower prices. Corporate analysts expect banking and finance, software services and telecom to be among the best performers.

Significantly, though, the early birds’ Q3 net profit performance has been better than in Q2. But these companies did much better in the Q3 ended December 2007 despite a single-digit rise in net sales.
 

Q3 GLOOM
Sample: 90 firms	Growth rates		Operating margin
	Sales	Net profit	%	Change**
Q1	41.00	24.70	15.97	-2.01
Q2	50.6	-14.60	13.29	-6.65
Q3	29.60	-5.41	14.16	-4.76
Q3*	6.30	21.10	18.92	-3.40
*Third quarter ended Dec 2007 **Year-on-Year change in operating margins          Figures in %

So far only five companies — TCS, Infosys Technologies, Jet Airways, Bajaj Auto and Bongaigaon Refineries — that attract significant investor interest have declared results. These results are broadly in line with expectations that software service firms will benefit from rupee depreciation and those in the automobile, aviation and refinery industries will deliver poor results.