Q4 FY12 Results - A Curtain Raiser

The March quarter results, which are keenly awaited by the investors and market watchers, have failed to bring any cheer this time around. India Inc. is yet to show any signs of emerging from the problems that have plagued it for the past few quarters, and rupee depreciation is making the story bleaker.

Rampant inflation, rising interest cost, policy paralysis, weakening IIP numbers, a depreciating rupee and the continuing problems in the Euro zone. India Inc. has been battling on many fronts on the domestic as well as the global turf. The impact of this can be clearly seen in the Sensex witnessing a decline. In such a situation, the results for the quarter ended March 2012 were seen as a major trigger for the markets. The results were also followed keenly by investors as companies provide guidance for the next year when they announce their numbers for this quarter.

Market watchers were eyeing the March 2012 quarter results in the hope that the companies may provide some positive guidance for the next year. However, the start itself was not that good, with IT bellwether Infosys failing to impress investors and providing what was hailed as ‘bleak guidance’ for FY13.

Performance Of India Inc. In The March 2012 Quarter
Particulars (` Crore)	12-Mar	11-Mar	% Change
Sales	607836	513119	18.46
Net Profit (Adj. Ex. Ordinary Income)	56475	55231	2.25

Sometimes, the tides get just too rough to handle, and every attempt at swimming against them only tires you out without much success. The initial results for the March 2012 quarter seem to be echoing a similar story for India Inc. With inflation remaining at the higher levels (6.89 per cent in January 2012, 7.36 per cent in February 2012 and 6.89 per cent in March 2012), the impact on the input costs is clearly seen in the results. The rising interest costs and weakening IIP numbers have been playing a spoilsport for quite a few quarters now, and the situation has only been aggravated by a new irritant entering the scene – the depreciating rupee and the consequent forex losses. This has made matters worse for India Inc., whose bottomlines seem to be weakening.

Till date, around 1095 companies have announced their March 2012 quarter results, and the data has not been particularly encouraging. The topline has increased by 18.46 per cent and after adjusting for extraordinary income, the bottomline growth is a meagre 2.25 per cent. Compared to the topline growth of 22.40 per cent and the bottomline growth of 18 per cent in March 2011, the figures for the recently-elapsed quarter are significantly poor. Some improvement is witnessed on a sequential basis, where the topline witnessed an increase of 6.85 per cent and the bottomline shot up by 16.86 per cent. For the December 2011 quarter though, the performance itself was not that good, as the bottomline has witnessed a decline of around seven per cent on a YoY basis.

Input Costs Still Higher

A look at the March 2012 quarter results throws light on a few things very clearly. Raw material costs have increased significantly by 17 per cent, impacting margins. Commodity prices have remained firm, and so have crude oil prices. What added to the worries was the depreciating rupee, which made the import of raw materials a costly affair. There has been no respite on the raw materials front, as the coal and minerals prices also remained on the higher side.

Rise Of ‘Other Income’

Another noticeable factor is that there was a considerable increase in the ‘Other Income’ for the period. Adjusted for banks, the Other Income for Q4FY12 was up by 75 per cent on a YoY basis to `11401 crore and up by 31 per cent on a sequential basis. To start with, even Reliance Industries recorded ‘Other Income’ of `2295 crore for March 2012 as against `917 crore in March 2011. NTPC was not far behind, with `670 crore as against `205.56 crore.

Higher Interest Burden

With inflation yet to come to the comfort levels, the RBI maintained the key interest rates higher. It was only in April 2012 that it reduced the repo rate by 50 basis points to eight per cent. However, the damage was already done, with a steep rise in the interest cost of the companies. Adjusted for banks and financial institutions, the interest cost is higher by 44 per cent at `11071 crore from `7675 crore in March 2011. This has severely impacted the bottomline. Now, the interest cost as a part of the net profit stands at 29.86 per cent as compared to just 19.80 per cent in March 2011. Thus, the impact of the rising interest cost is clear.

Rising Interest Burden
Particulars (Rs Crore)	12-Mar	11-Mar	11-Dec
	Y-o-Y	Q-o-Q
Interest Cost (Adj. For Banks & Fin. Services)	11071	7675	10141
(%) Increase in Interest Cost	44.25	9.17

The rising interest cost has also impacted the capex cycle, which is indicated by the meagre four per cent rise in depreciation. The worst part is that not many banks have agreed to pass on the benefits of a cut in the repo rate, and hence the pressure is expected to haunt India Inc. in the next quarter too

Even if we consider the ‘A’ group companies, the trend is similar. The  topline increased by 22 per cent, with a paltry increase of less than four per cent in the bottomline. Sectors like banking, FMCG and cement came up with some positive figures on the bottomline front. Around 34 banks posted a bottomline growth of 20.50 per cent on a YoY basis. Improved NIM and lower provisioning have been major factors behind their good performance. Cement companies also posted a positive YoY topline growth of 18.10 per cent, and after adjusting for extraordinary items, the bottomline growth stood at 23.65 per cent. Improved realisations and higher volumes were major factors in their favour. In the FMCG sector too, the mix of better volumes and higher pricing resulted in better bottomline growth.

In sum, the Q4 results suggest that India Inc. has failed to impress on the financial performance front. Not much is expected to change as more companies announce their numbers. Rather, we feel that the impact of these factors may also hurt the Q1FY13 performance of companies.

Fast Facts

• Out of the total 1095 companies that we have considered, the net profit of 589 companies increased, while that of 492 companies declined and 14 companies remained stagnant.
• The sales of 676 companies increased, while those of 375 companies declined and 45 companies remained stagnant.
• The interest cost of India Inc., excluding that of banks and financial institutions, has increased by 44 per cent or `3396 crore on a YoY basis. On a sequential basis, the interest cost is up by 9 per cent or `930 crore.