The Reserve Bank of India’s quarterly industrial outlook survey had hinted at a slower pace of industrial growth for the July-September quarter (Q2). At the halfway mark of the second-quarter results, India Inc’s revenues and profit are certainly showing signs of stagnation.
The Q2 results indicate that small sectors, such as basic chemicals, hotels, logistics, paper and plastic products, are expected to do well. The sample available so far is not large enough to ascertain a clear-cut trend for the coming quarters but it does suggest that from here on, India Inc has to work hard to maintain the growth tempo, since this is the last quarter of the low base effect.
The growth in net sales for India Inc has been around 20 per cent, driven by automobiles, auto ancillaries, capital goods, chemicals, fertilisers, IT-software, real estate and textiles. The cement sector was under greater pressure than expected and the available results for ferrous and non-ferrous metals firms hint at lower metal prices in Q2.
The 16 per cent growth in profit for manufacturing and services sectors, though better than the 6.4 per cent reported in the first quarter, is significantly lower than the 60 per cent-plus growth in the fourth quarter of the previous financial year. Except for automobiles and auto ancillaries, only entertainment, paper and textiles saw significant profit growth.
Fast-moving consumer goods (FMCG) companies maintained their revenue growth on the back of a price rise; for export-oriented pharma companies, top-line growth suggests growing demand in the US and Europe. Rising demand for residential and commercial complexes helped the top-lines of real estate developers.
Part of the reason for the pressured bottom-lines is the cost of raw materials, which has started eating into corporate margins. Overall, raw material costs as a ratio of net sales have risen 50 basis points year-on-year. The absolute growth in the cost of raw material for the sample companies has been the highest since the quarter ended December 2008, which explains why operating margins on sale of products has declined more than 100 basis points for the first time in the past eight quarters.
