An analysis of the 2,558 listed companies that have released results for the first quarter ended June suggests profitability has improved, if an exception is made for the troubled banking sector. However, one caveat must be made. A new Indian accounting standard (Ind-AS) is being adopted and the differences with the old standards are significant. This may obscure the picture, especially for companies with subsidiaries and joint ventures. Overall, net sales have seen a modest year-on-year increase of 7.7 per cent; operating profit is up 0.9 per cent and interest outgo has risen 1.84 per cent, but interest has declined as a percentage of net sales. Profit after tax (PAT) is down two per cent. The figures improve if banks are excluded.
While revenues amount to roughly 30 per cent of GDP, adjusted for extraordinary items, PAT, which is down 1.5 per cent, is about 2.5 per cent of GDP. The profit in relation to sales is at 7.74 per cent. If banks are excluded, PAT is 8.6 per cent of revenue now while it was eight per cent (year-on-year) in 2015 — that is an improvement of 0.6 per cent. Ex-banks, the other 2,518 companies have seen double-digit growth in profits and rising sales. The improvement is visible across multiple sectors suggesting that the business cycle is trending up. This sample has seen sales rise 9.5 per cent, while profit before depreciation, interest and tax (PBDIT) is up by 11 per cent and net profits are up 15.8 per cent. Operating margins have improved a little at 23.5 per cent compared to 23.15 per cent in Q1, FY16.
The story as far as banks are concerned continues to be grim. Hit by high provisioning for non-performing assets, PAT is down 61 per cent year-on-year and total income has increased only five per cent, implying credit off-take is very low. In contrast to banks, NBFC revenues are up 16 per cent and PAT is up 15 per cent.
Among sectors, agro-chem has benefited from better monsoon prospects and auto ancillaries and automobiles seem to be into an up-cycle. Cement has seen PAT gains of 81 per cent (PBDIT is up 38 per cent). The bull-run in sugar has transformed losses of Rs 980 crore in Q1, FY16 into profits of Rs 396 crore in Q1, FY17. The infrastructure developers segment has seen 35 per cent improvement in PAT and 15 per cent improvement in PBDIT. The paints industry has seen 27 per cent rise in PAT. In the power sector, Power Grid and Adani Transmission have done well. The performance of capital goods is more nuanced. Although sales are up only three per cent, PAT is up 33 per cent. Textiles has seen 53 per cent rise in net profits from four per cent increase in sales. In both cases, there have been margin gains.
There are disappointments too. The IT/ ITES industry saw only 10 per cent rise in PAT despite 15 per cent rise in rupee-denominated revenues — margins are under pressure. Pharmaceuticals also has a mediocre performance, but the performances of pharmaceuticals majors has been extremely variable. The FMCG firms also disappointed with sales up only 4.5 per cent and PAT down 1.6 per cent. Overall, the results seem to indicate gradual improvement in the business climate with good performances scattered across industries.
