StatsGuru: 11-February-2013

Corporate results not as good as they look

Corporate results for the third quarter have almost all been announced and, in some ways, have caused considerable optimism among observers and investors. After all, as Table 1 shows, net profit growth has remained high year-on-year even if it has slipped slightly sequentially. This is a relief after the tough quarters in 2011-12, when profit growth was deep in the red. However, also visible in Table 1, net sales growth paints a far less pretty picture. It is near-stagnant sequentially and has been steadily falling year-on-year. However, it seems that, at least, India Inc is making a return, which it wasn’t for much of last financial year. As Table 2 shows, net profit margin has been beating inflation for a few months. And, 40 per cent of firms have shown either a growth in profit or moved from losses to profit in this quarter, as Table 3 lays out. Deconstructing the numbers, however, is of some interest. As Table 4 shows, Other Income – such as gains due to currency movement — is still relatively high, if a slightly smaller proportion of net sales than it was at points in 2011-12. Worryingly, it appears while sales are stagnant, cost control appears to be the source of profit growth, as Table 5 shows. (Click for tables & charts)

This will lead to questions about sustainability of the corporate strategy to grow profits – costs can’t be cut forever. It is also important to note that continuing delays by the Reserve Bank for a deep cut in interest rates continue to hurt Indian firms; as Table 6 shows, interest costs are a steadily increasing component of total income. Table 7 lists sectors that have done well and those that have done badly. Worryingly, leading sectors like capital goods and high employers like textiles are still showing poor profit margins.