DSIJ Mindshare

Q1 Results: A Wake-Up Call

From a downgrade in the outlook on India by a few rating agencies to renewed concerns of a double-dip recession in the US, along with the Euro zone worries that are still rearing their heads, the domestic as well as global markets have been
in a tizzy over the past few months. Add to this the issues on the domestic front, including the tepid economic data along with policy paralysis and an internal tiff between the UPA allies that is creating uncertainty, and the scenario has certainly not been encouraging for India Inc.

Just to quantify a few facts on the economic data front, the IIP registered a miniscule growth of just about 0.1 per cent in April 2012, improving marginally to 2.4 per cent in May 2012. The June figures are not expected to be any better either, clearly indicating that industrial production has been severely impacted.

Despite such a setback, the RBI has hardly budged, maintaining status quo on the interest rate front as inflation continuously remained above the bank’s comfort levels. While the WPI figures for April (7.23 per cent), May (7.55 per cent) and June (7.25 per cent) remained obstinately above the seven per cent levels, the situation was even worse in case of the CPI. The CPI data for April (10.36 per cent), May (10.16 per cent) and June 10.02 per cent) continued to haunt investors. It is hardly a wonder then, that the impact of all this was seen on the country’s GDP growth rates, with most leading research houses revising their GDP targets for FY13 downward to below seven per cent levels.[PAGE BREAK]

As a natural consequence of these factors, India Inc. was also expected to be impacted negatively, and the initial figures for the quarter ended June 2012 exemplify the same. Around 300 companies have announced their results till date, and the figures we have are quite dismal. Thanks to the consistently high inflation levels, the topline growth stands at 16.76 per cent on a YoY basis. However, factors like increasing raw material prices and higher interest costs have restricted the bottomline growth to just around 3.52 per cent. Even if we adjust the figures for extraordinary income, the bottomline shows a miniscule improvement and stands at just 3.59 per cent.

We are not at all surprised to see such figures. On a sequential basis too, the figures are not encouraging, as the topline witnessed a marginal improvement of 0.17 per cent and the bottomline (adjusted for extraordinary income) witnessed a decline of 5.17 per cent. One noticeable factor is the other income, which is up by 32 per cent on a YoY basis and has come to the rescue of companies yet again.

Performance of India Inc. In June 2012 Quarter


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Input Costs: Still A Matter Of Concern

With inflation remaining at higher levels, there has been no respite on the input cost front. The raw material cost has witnessed an increase of 20.39 per cent on a YoY basis. The impact of this was directly seen on the margins front, as the aggregate operating margins for the quarter ended June 2012 declined to 17.32 per cent from 19.35 per cent during the year ago period. A negative impact of around 200 basis points is quite a significant one. While commodity prices are witnessing some decline, there will be a lag effect till the September 2012 quarter.

Interest Costs: Yet To Witness A Decline

We have continuously focussed on the interest cost burden in the past as the key interest rates were maintained at the higher levels. Though the RBI reduced the Repo rate by 50 basis points in April, not much of an impact is visible in the June 2012 quarter results. The aggregate interest cost, excluding that of banking and finance companies, has gone up by 41.91 per cent, which is a significant increase. The cost has increased by 17.29 per cent on a sequential basis too. To put the above figures in perspective, the interest cost for June 2012 as a percentage of operating profit increased to 8.22 per cent from that of just 5.95 per cent in June 2011.

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Fall In Depreciation Cost: A Major Worry

With the cost of capital remaining high, the capex cycle has taken a hit. This is quite evident from the fact that the depreciation charges for the quarter ended June 2012 have witnessed a decline of two per cent on a YoY basis. In simple terms, if there is no capex, we do not expect much growth on the industrial front for the next two-three quarters. This is the second consecutive quarter in which depreciation has declined as compared to the corresponding period. We are of the opinion that this will be a major worry going ahead.

If we dig further into the results, they clearly indicate that the banking and FMCG companies have managed to put in a better performance yet again. On a YoY basis, these companies have posted a topline growth of 26 per cent and a bottomline growth of 17.46 per cent. Without the banking companies’ numbers, the YoY topline growth would have been just 14.85 per cent (16.76 per cent) and the bottomline would have witnessed a decline of 0.15 per cent (3.58 per cent). If we look at the performance of companies in the ‘A’ group, it seems to be in line with the overall results, as the topline growth stands at 16.74 per cent and the bottomline growth is at 3.80 per cent.

Here are some interesting numbers for a better perspective. There are 187 companies that have posted a growth in sales, 34 companies have remained unchanged in terms of sales, while 79 companies witnessed a decline in sales during the June quarter. In terms of net profits, the figures change quite a bit. Around 156 companies have witnessed an increase in their net profits, 20 companies posted no change and 124 witnessed a decline.[PAGE BREAK]

To sum it up, after a poor March quarter, the results for the quarter ended June 2012 have also failed to impress the street. We will keep our readers updated as more numbers are announced going forward.

However, we do not expect the scenario to change significantly from what it currently is.

Fast Facts
  • Out of a total of 300 companies that we have considered, the net profit of 156 companies increased, while that of 124 companies declined and 20 companies remained stagnant.
  • The sales of 187 companies increased, while those of 79 companies declined and 34 remained unchanged.
  • The interest cost of India Inc., excluding that of banks and companies in the financial services space, has increased by 42 per cent on a YoY basis. On a sequential basis, the interest cost is up by 17.29 per cent.
  • The operating profit margins for the quarter ended June 2012 declined to 17.32 per cent from 19.35 per cent in June 2011.
  • The depreciation cost has declined by two per cent on a YoY basis, indicating slower capex.

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