An examination of the April-June 2012 quarterly results declared so far (Q1, 2012-13) indicates that rising interest costs continue to retard profit growth. So far, about 824 listed companies operating across about 60 sectors (including conglomerates with diversified and miscellaneous businesses) have released Q1 results. This sample includes many market leaders. Sales hit Rs 618,313 crore, an increase of 17 per cent over the corresponding quarter of June 2011. There is a substantial 21 per cent increase in other income, which may be a sign of some padding of the profit & loss account. Operating profits (Profits Before Depreciation Interest and Tax, or PBDIT) have also increased by 17 per cent. Interest costs have ballooned by over 30 per cent. As a result, net profits are up by just under 10 per cent. Operating profit margins (PBDIT as a percentage of sales) remained almost stable, at 34.6 per cent versus 33.6 per cent in Q1, 2011-12. But net profit margins dropped to 9.8 per cent in 2012-13 from 10.7 per cent. The culprit was interest costs, up at 17.8 per cent of sales in 2012-13, versus 16.1 per cent of sales in 2011-12.
Very few sectors outperformed. Banks have done well with 24.8 per cent growth in sales volumes and net profit growth of 22.6 per cent. There is a clear divide within the sector. Private sector banks registered 31.2 per cent growth in sales and net profit growth of 28.8 per cent while public sector banks registered 23 per cent growth in sales and 19 per cent growth in net profits. Non-banking finance has also done well with 22 per cent growth in net profits and 27 per cent increase in sales. IT has ridden rupee depreciation to register 31.8 per cent increase in sales and 37 per cent growth in net profits. TCS and HCL Tech shored up overall results despite poor performances from Wipro and Infosys. Cement had a third successive excellent quarter with 20.8 per cent growth in net profits and 17 per cent growth in sales. Fast-moving consumer goods generated an astonishing 69 per cent growth in net profits while registering only 15.3 per cent sales growth. This is largely attributable to giant Hindustan Unilever’s improved performance.
Several key sectors have disappointed investors. Refining for instance, has been dragged down by declining net profits from Reliance Industries (the oil marketing PSUs, which are yet to declare results, could pull margins down further). Automobiles have seen a 4.4 per cent decline in net profits and auto ancillaries have been hit even harder with 16 per cent decline in net profits. Capital goods as a whole have registered a nominal 3 per cent growth in net profits though the electrical goods segment has done a little better.
The broad picture doesn’t show much signs of an uptick in the business cycle. Inflation based on the Wholesale Price Index was up by about 9 per cent year-on-year. Factor that in and the results look anaemic. Given the impact of interest costs and the Reserve Bank's uncompromising stance on rates, India Inc is unlikely to bounce back until there is a trend reversal in the inflation cycle.
