Good, but...

The revenue growth rate for 256 companies that have declared results so far (excluding banks and non-financial companies) for the March 2007 quarter has slowed to 21.4 per cent year-on-year as compared with 36 per cent in each of the previous two quarters of 2006-07 and 33 per cent in the June quarter. These numbers include those of Reliance Industries, which had a sales growth rate of 5.5 per cent""at about the same levels as market expectations. However, the sales growth rate looks better at 28.9 per cent if Reliance Industries is removed from the list. No doubt, it is lower than the 31-35 per cent growth rates (excluding Reliance) witnessed in the previous three quarters, but the fourth quarter results have been in line with what analysts have been expecting. The sales growth numbers indicate that the demand side remains robust for India Inc. The domestic consumer is not shying away from buying goods and services, and the demand abroad remains strong for the information technology sector, which accounts for around 17 per cent of the total sales.

But a closer look at the numbers reveals that the growth rate in operating profit is surely slowing over the past four quarters. It was 42.5 per cent in the first and the second quarters, went up to 48.4 per cent in the third quarter, and declined to 28.57 per cent in the fourth. Again, if Reliance is removed, the operating profit growth look somewhat better at 32.9 per cent year-on-year in the March quarter, though much lower than the 50 per cent growth in the first two quarters and 35.3 per cent in the December quarter.

The reason for the lower increase in operating profit is that costs are going up. The operating profit in large companies like Maruti and Siemens grew slower than sales due to higher raw material costs. Companies such as Bajaj Hindusthan saw a decline in the operating profit on a year-on-year basis as sugar is not a profitable business today. The other income, which increased by 55 per cent year-on-year, has also been a significant contributor to this. However, the positive is that the operating profit growth rate remains higher than the growth rate in revenue.

The improvement in the operating profit margin also is not bad. In the previous three quarters, the margin grew year-on-year by 100 to 190 basis points. In the fourth quarter, it grew 128 basis points. At the net level, the growth has slowed considerably""from 50 per cent levels in the previous three quarters, the net profit growth has declined to 35.15 per cent. The culprit is interest cost. Along with expansions, which may have led to some increase in the borrowings on a year-on-year basis, the interest cost has gone up by 21.5 per cent against 7 per cent in the previous quarter and 8.4 per cent in the June quarter.

So far, the results have met the expectations of analysts""the market has taken the lower margins in technology and automobile companies in its stride. But these are early days yet and the picture will get clearer after more results are announced over the next month. Also, technology companies are among the first to get off the results block, and since their business momentum has continued, the numbers are somewhat skewed.

The markets are now working out what will happen in 2007-08. Like always, uncertainties will plague analysts and investors. Global markets are on a roll, as also are interest rates. Most commodities too are going up, including crude oil, gold and copper. The dollar is dropping against most currencies, and where it will end is a matter of intellectual speculation""and if a US slowdown does happen, how global economies across the world, including India, will get affected are questions that will get answered in the next few months.