Corporate climb

First-quarter results are in sync with economic indicators

The first-quarter (April – June) results of a sample of 486 companies (four of them in the petroleum sector) that were analysed by the Business Standard Research Bureau provide some indications that the corporate sector has seen off the worst of the slowdown and is getting into recovery mode. There is, of course, a sharp contrast between the performance of the four oil companies and the rest of the sample, and it is from the numbers reported by the larger sub-group that the relief emerges. The 482 companies in this group saw sales increase by 8.9 per cent over the corresponding quarter of last year. This is in nominal terms but, given the low average inflation rate during the quarter, this number fairly represents the growth in physical volumes. By virtue of low inflation, costs grew by a mere 6.2 per cent, which allowed Ebitda to grow by 15.8 per cent and net profits to grow by an impressive 28.3 per cent. Given the wide sector representation in the sample, this is an impressive performance and provides substance to the view that the recent buoyancy in equity markets is rooted in performance rather than just speculative buying.

There is significant variation across sectors, but this is to be expected given the uneven early impact of fiscal and monetary policy measures. Consumer goods companies have done relatively well, in both the FMCG and durables sectors. The latter has been showing up as the star performer in the Index of Industrial Production (IIP), largely attributable to the demand generated by the implementation of the Sixth Pay Commission recommendations. In obvious contrast, capital goods companies have done relatively badly, reflecting the still hostile investment climate, which will only improve when capacity utilisation returns to what might be considered normal levels. Of course, everybody has been helped by significant softening in input prices as well as the reductions in excise duty rates that were part of the December and January fiscal packages. Looking ahead, these patterns suggest that as some sectors continue to improve, others will be pulled along by linkages and better capacity utilisation. The persistent decline in exports has apparently not materially impacted the performance of this sample, demonstrating the inherent power of the domestic market.

The four oil companies reveal a sharply divergent pattern as revenues and aggregate profits have taken a beating in the wake of the sharp fall in crude oil prices. However, these companies have seen a fairly significant increase in Ebitda, with 19.4 per cent growth over the previous year. The developments may not be very good news for investors in these companies, but everyone else will heave a sigh of relief at the moderation of oil prices. Overall, these numbers reinforce the view that the bottom has been plumbed and the only direction to move is up. The question is how quickly.