Falling rupee hurts India Inc in Q1

Mark-to-market losses, oil & gas companies drag profits sales growth moderates

The Rs 4,800-crore hit on account of mark-to-market (MTM) provisions for currency fluctuation and poor show by oil and gas sector have hurt India Inc’s profit growth rate in the first quarter. However, other income, with a 30 per cent share in net profit of 898 companies from the manufacturing and services sectors, has come to the rescue.

The financial results of 1,061 companies have shown that sales growth has moderated to 15.7 per cent, from 26.4 per cent in the quarter a year ago. Net profit growth of around seven per cent appears to be decent, given the huge provisioning for rupee depreciation.

Overall, the subdued profit growth has largely been on account of the oil and gas sector, which has reported a 51 per cent decline in net profit in the first quarter. The profit growth of ex-oil companies stands at 14.4 per cent, significantly higher than that for the overall sample.

A large part of the decline in the rate of profit growth has been led by petrochemicals giant Reliance Industries, MRPL, CPCL, Sterlite, JSW Steel, Grasim, Maruti Suzuki and Jindal Steel. These companies have undone strong numbers reported by Cairn India, TCS, Infosys, ICICI Bank and HDFC Bank.

Operating margins continue to be under pressure, down 167 basis points (bps) over those a year ago. The steep fall was largely on account of, again, the oil & gas sector. The margins for ex-oil companies has declined marginally by 67 bps. One basis point is the hundredth part of a percentage point.

While margins have remained under pressure across all sectors, banks, FMCG and companies have reported some improvement.

Banking, finance, software services and FMCG sectors have done well, while sectors that faced demand pressure — like automobiles, capital goods and metals — have shown weak results.
 

SLIPPING ON OIL Q1 results of 1,061 companies                                     (Figures in %)
Quarter ended	YoY growth in sales		YoY growth in profit
	Jun-11	Jun-12	Jun-11	Jun-12
Total sample	26.40	15.72	14.65	6.51
Excluding oil	21.92	16.32	13.84	14.36
Auto	14.58	15.72	14.88	-4.43
Banks	16.26	17.57	9.11	22.93
Capital goods	13.77	15.96	10.32	2.70
Cement	38.17	17.82	29.36	18.62
FMCG	17.41	15.52	15.26	15.49*
IT- Software	24.47	31.76	18.19	39.06
Pharma	15.99	26.12	14.61	8.06
*Adjusted for HUL exceptional income of Rs 604.69 crore Source: Capitaline Plus

Pharma companies have reported sales growth of over 26 per cent, but their profits have risen by just two per cent, mainly due to MTM provisions. Net profits of steel companies have also been down significantly for the same reason.

So far, 55 companies have reported forex losses due to the depreciation of around nine per cent in the value of the rupee in the fist quarter. The forex loss has been on account of a rise in interest burden on forex borrowings, import cost and hedging against exports.

Reliance Industries saw its interest cost on forex loans going up by Rs 210 crore, while MRPL (loss Rs 649 crore) and CPCL (loss Rs 377 crore) made MTM provision for inventory loss on account of exchange difference. The impact of forex loss on profit was higher in the cases of JSW Steel, Jindal Steel and Power, JSW Ispat JSW Energy and Sesa Goa. Hero Honda saw pressure on profit on account of Rs 220-crore royalty payout.