No broad-based revival

Early-bird corporate results offer hope but no clear trend

Results of listed companies for the first quarter of 2016-17 (FY17) so far have not been too encouraging. These are early-bird results and naturally it is much too early to make definite judgements since many big companies are yet to declare results for this period. But a broad-based revival of corporate growth is not visible. For the 209 companies that have released results so far, net sales have grown 1.9 per cent in the April-June period, compared to a year ago. Total income for this group of companies has grown 3.4 per cent, while operating profit (PBDIT) is up 8.1 per cent and net profit is up 8.37 per cent. Net profit and PBDIT margins have improved year-on-year (y-o-y). It must be noted that this sample had registered a y-o-y revenue decline for the previous five quarters. There is, therefore, some scope for optimism.

However, the perspective changes a little when banks and non-banking finance companies are excluded, leaving 163 companies in this sample. That set of 163 companies has registered a decline of 0.6 per cent in net sales, and an increase of only 0.3 per cent in total revenue. But, operating profit is up 10.5 per cent and net profit is up nine per cent. What is worrisome is that profitability has declined for 25 of these companies, with another 35 registering losses. Worse, operating margins and net margins may have improved y-o-y, but they have declined sequentially compared to the last quarter of 2015-16 (FY16). There are continued y-o-y gains from low commodity prices. But raw material costs went up at 31.5 per cent of total revenues, which are higher than the 30.2 per cent recorded for the fourth quarter of FY16, though these were well below the 37.3 per cent for April-June FY16.  

There are some worrying signs in banking as well. So far, 11 banks including private majors, HDFC Bank, Indusind, Kotak Mahindra and Axis Bank have declared results. Credit expansion is minimal at just 7.8 per cent and net profit is up only 2.3 per cent. The major private banks have recorded higher non-performing assets (NPAs), with Axis Bank seeing the largest slippage in its NPAs. The market has been disappointed by the performance of companies in the information technology (IT) and fast-moving consumer goods (FMCG) sectors. The IT sector was expected to do reasonably well but it was hit by slow demand. Most of the companies including TCS, Infosys, Wipro, Mindtree and Mphasis have released results and guidance that show rising margin pressure. Revenues have grown 13.7 per cent (rupee terms) but net profit is up only 7.5 per cent. Pharmaceutical companies, operating in another key export sector, have done better, though many of them are yet to release results. Biocon, Sanofi India and Syngene have all registered high net profit growth. Companies in the FMCG sector have delivered disappointing results with Hindustan Unilever seeing stagnant revenues (up 2.6 per cent y-o-y) and slow profit growth (up 9.8 per cent). ITC has also registered only 10.1 per cent growth in net profit with 10.5 per cent growth in sales.

Among the more heartening signs is the strong performance by capital goods manufacturing companies such as Havells, ABB and TIL, which have all registered income growth and improved profitability. Tractors India has seen a full-scale turnaround. UltraTech Cement has also registered strong net profit growth of 29 per cent.  Agro-major, Rallis, has seen profits up by 300 per cent. The auto ancillary sector has logged 31 per cent rise in net profit and commercial vehicle-maker, Ashok Leyland, has seen its net profit double. The question is whether these are signs of genuine revival in activity or isolated performances.