How Did They Do In Q4: Report Card Of India Inc.
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Come result season, the investors hooked to the stock markets remain glued on the television screens of the business news channels, their eyes focus on all available print materials to know the numbers as their hard-earned money is invested in these companies, listed with country’s bourses. In Dalal Street Investment Journal, we think ahead of others and our thoughts evolve around our reader-investors spread across the country. Our Research Team works harder during the result seasons and then try to narrate what all are hidden behind those numbers. This is yet again another attempt to carry out dissection of the fourth quarter numbers and we have divided the analysis in 10 sub-segments so that our reader-investors get in-depth knowledge on their finger-tips.
The Q4 results reveal India Inc. is finally showing signs of turnaround in terms of revenues and profits. The BSE index companies witnessed a better sign of growth during Q4FY16. The top line of the blue chip companies rose by 4.96 per cent on quarterly basis and 4.65 per cent on yearly basis. Operating profit for these companies too rose by 8.71 per cent on QoQ basis and 17.75 per cent on YoY basis. The Sensex companies bottomline also boosted by 12.39 per cent on sequential basis and 13.77 per cent on yearly basis in Q4FY16.
We also analysed more than 1100 companies from key sectors. On financial front, India’s growth accelerated in Q4FY16. The revenue of these companies increased by 2.96 per cent on quarterly basis and 0.55 per cent on yearly basis in Q4FY16. The operating profit too boosted by 6.24 per cent on YoY basis. The net profit for all of these companies reduced by 33.65 per cent on sequential basis and 53.67 per cent on yearly basis due to banking, oil & Gas and metal sectors posting negative numbers.
FY17 Outlook
After awesome results from the listed companies, the outlook for Q1FY17 is now also looking better. There are various key triggers that will impact FY17 results such as above average forthcoming monsoon predictions. If monsoon is normal then automobiles, agriculture related firms, private banks and FMCG entities would do well. The cement sector due to overcapacity, highly leveraged infra companies and real estate due to lack of pick-up in demand would suffer. The government’s UDAY scheme, finances of State Electricity Boards (SEBs) would improve in future. The impact of pick up in various infrastructure projects will be felt in near term.
The banking sector has been struggling from bad loans issue from quite a long. The Reserve bank of India (RBI) keeps its goal to clear entire stressed assets by FY17. The government is also trying to minimise the effect of non-performing assets (NPA) on financials on banking industry by passing the bankruptcy code from both the houses. The finance ministry is also willing to consolidated public sector banks to direct them from loss making to make profitable. The lower number of public sector banks would give better governance and service to customer after the consolidation.
Sectors that will lead the growth
On backing of better monsoon, automobile, automobile ancillary sectors are expected to perform well. On verge of better performance from economy, sectors like engineering, infrastructure, capital goods, power and cement too will do well. There might be turn around for metal and oil & gas sectors in the coming quarters majorly depending on commodity prices and international crude oil prices. Meanwhile, the country’s infrastructure boost will drive growth for metal sector in coming term.
Sectors that will face tough time
Infrastructure and construction related companies will continue to struggle in future. The banking sector may continue to be under pressure due to NPA situation for another couple of quarters. Meanwhile, industry will see better growth after clouds over the bad loans starts clearing out and government polices to be in implementation. The USFDA issues will continue to bother the pharmaceutical companies.
Automobile
The automobile sector plays a key role in Indian economy and it provides more than 10 million jobs. In India there are more than 60 companies in automobile sector, out of them 49 are listed on Nifty 50 & BSE. As 100 per cent FDI is allowed in the automobile sector, it witnessed 89 per cent growth in FDI to USD 2.42 billion in last fiscal year. The industry is broadly classified with respective market share as commercial vehicles 3 per cent, passenger vehicles 14 per cent, three wheelers 3 per cent and two wheelers 80 per cent.
The automobile industry contributed 7.1 per cent to Indian GDP in FY15. The auto Industry produced total 19.84 million vehicles in April-January, 2016 including commercial, passenger, three & two wheelers as against 19.64 million a year ago. Domestic sales of the passenger vehicles grew by 7.15 per cent in FY16 on yearly basis. The passenger vehicles and passenger cars rose by 10.18 per cent during 9MFY16 on yearly basis. Domestic sales of commercial vehicles increased by 9.43 per cent in 9MFY16 over the same period of last year. Sales of medium and heavy commercial vehicles rose by 30.19 per cent.
Passenger vehicles production registered growth rate at 14.45 per cent CAGR over the last six years i.e. FY11 to FY16. During the same period, commercial vehicles, three wheelers and two wheelers registered a CAGR of 2.9 per cent, 16.81 per cent and 41.05 per cent respectively.
We have analysed 18 companies from the automobile sector. On yearly front, automobile sector’s top line boosted by 17.93 per cent in Q4FY16, due to strong demand and reduction in fuel cost and also 30 per cent of total manufactured vehicles exported during the last financial year.
In automobile Industry majority of the total expenditure incurred from raw material and labour expense comprise 47 per cent and 21 per cent respectively. Therefore, changes in the price of petrochemicals products and steel leads to changes in the overall cost of production. More use of technology leads to reduction of their direct labour cost and increase in sales and production leads to reduction in fixed cost.
The sector’s operating profit too increased by 32.41 per cent in Q4FY16 as compared to same period in previous fiscal year. Its interest expense reduced by 35.18 per cent in Q4FY16 on yearly basis. Automobile industry’s net profit boosted by 74.87 per cent in Q4FY16 as compared to same period in the previous financial year.
Macroeconomic factors such as investment in infrastructure reduce interest rates and expectation of good rainfall is expected to boost the Indian automobile sector. In the current year union finance ministry has allocated more than Rs 2 lakh cores to create demand for heavy and medium Commercial vehicles, and other types of vehicles as well. Also RBI reduced the interest rate to boost investments. Exports of two wheelers and three wheelers have registered a significant growth during last 3-4 years. However, with a slowdown in demand from the traditional export markets like Algeria, Sri Lanka, Indian automobile exporters are likely to explore newer markets to push exports. Some of these potential markets could include Chile, Peru, Colombia, Nigeria and South Africa.
There are various issues being faced by the automobile sector, like government policy of putting ban of diesel-run vehicles in certain regions and two-year consecutive draught like situation in the country. Meanwhile, India Meteorological Department (IMD) forecasted that current year’s monsoon will have more than average i.e. 106 per cent rain fall. Better monsoon will drive domestic demand and give a boost to the automobile sector. Upcoming first quarter of FY17 will be better as compared to same period in the previous financial year.
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Banking Sector
Indian banking industry is expected to witness roll out of innovative banking models like payments and small finance banks. There are about 11 payment banks which are expected to be launched in 2017 and some have already made their presence felt. Separately about 10 small finance banks are also expected to be launched during the fiscal year. RBI’s new measures may go a long way in helping the restructuring of the domestic banking industry.
The Reserve Bank of India (RBI) is trying to re-align the shape of the stressed assets for the banking sector. RBI’s governor Raghuram Rajan has a goal to clean out non-performing assets to zero by end of FY17. The government is also trying to minimise the bad loans of the majority of the public sector banks. The government is planning to set up a fund to invest in the distressed assets of the public sector bank. The fund size and the investment details are not yet declared but it is more likely that it would be led by SBI.
The results of the banking sector have failed to impress this quarter. The major reason for such a negative result was rise in the distressed asset. For the major public sector banks (PSB) the combined net loss of 24 PSBs stood at Rs 2334 crore for Q4FY16 against net loss of Rs 10653 crore in Q3FY16 as bad loans situation has worsened.
We have analysed about 39 banks and the sector’s top line increased by 1.14 per cent on quarterly basis. The industry’s other income increased by 32.25 per cent on sequential basis. The operating profit before provisions and contingencies declined by 12.73 per cent and stood at Rs 63119 crore as of Q4FY16 as compared to previous quarter. The industry witnessed about 55.62 per cent surge in provisions and contingencies expense during Q4FY16 on quarterly basis. The industry posted overall net loss of Rs 14284 crore in Q4FY16 against net profit of Rs 925 crore in Q3FY16.
Considering year on year comparison, the banking industry’s top line increased by 2.94 per cent to Rs 241706 crore in Q4FY16. The sector’s other income too rose by 7.4 per cent to Rs 50896 crore in Q4FY16 on yearly basis. Operating profit before provisions and contingencies increased by 2.59 per cent in Q4FY16 as compared to same period in previous financial year. The industry witnessed more than two-fold increment in provisions and contingencies during Q4FY16 on yearly basis. The banking sector reported net loss of Rs 14284 crore against net profit of Rs 20344 crore in Q4FY15.
On asset quality front, the banking sector’s bad loans situation deteriorated further in Q4FY16. The banks’ gross NPA increased by 31.64 per cent in Q4FY16 on quarterly basis and net NPA also rose by almost two times in Q4FY16 on yearly basis. The net NPA increased by 34.2 per cent in Q4FY16 on sequential basis and net NPA boosted by more than two folds compared to year on year basis.
The banking industry’s average gross NPA stood at 6.93 per cent in Q4FY16 against 5.11 per cent in Q3FY16. The sector’s average net stood at 4.3 per cent in Q4FY16 while 3.28 per cent in Q3FY16.
The PSB major, State Bank of India’s top line increased by 3.97 per cent to Rs 57275 crore in Q4FY16 on sequential basis. The operating profit before provisions and contingencies expense increased by 11.54 per cent to Rs 17550 crore in Q4FY16 as compared to previous quarter. Its bottom line declined by 1.02 per cent to Rs 1360 crore in Q4FY16 on quarterly basis.
Considering private sector major bank, HDFC Bank’s top line increased by 3.8 per cent 15997 crore in Q4FY16 as compared to previous quarter. The bank’s operating profit before provisions and contingencies remained flat to Rs 5735 crore in Q4FY16 on sequential basis. Its net profit increased by 0.54 per cent to Rs 3374 crore in Q4FY16 as compared to previous quarter.
There are various development happening in the banking sector such as government working on consolidation of public sector banks. The implementation of the Insolvency and Bankruptcy Code will help banking sector to recover stressed assets during current financial year.
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Capital goods
Capital goods sector is the base of many industries and thus an essential component of the manufacturing sector. With a total market size of USD 92 billion and production valued at USD 32 billion, capital goods sector today contributes to 12 per cent of India’s manufacturing output and 1.8 per cent to GDP. The capital goods industry employs 1.4 million of people and is estimated to employ 2.8 million by 2017.
We have analysed about 200 companies from capital goods sector. The top line of the sector witnessed a growth of 4.36 per cent during Q4FY16 as compared to same period in previous financial year. The overall industry’s cost of raw materials reduced by 6.5 per cent during Q4FY16 n yearly basis. The employee expense slightly rose by 3.64 per cent in Q4FY16 as compared to same period in previous financial year. The sector’s operating profit increased by 10.79 per cent to Rs 12572 crore in Q4FY16 as compared to same period in previous fiscal year. The industry’s interest expense increased by 10.62 per cent and other income increased by 11.97 per cent during Q4FY16 on yearly basis. The sector’s net profit jumped by 44.5 per cent to Rs 1809 crore in Q4FY16 as compared to same period in previous fiscal year.
Considering quarter on quarter (QoQ) comparison, the capital goods sector’s revenue increased by 22.79 per cent in Q4FY16 as compared to previous quarter. The industry’s raw material expense also rose by 18.89 per cent and employee cost declined by 6.29 per cent in Q4FY16 on sequential basis. Its operating profit boosted by 49.4 per cent in Q4FY16 as compared to previous quarter. Capital goods industry other income also rose by 19.25 per cent and interest expense increased by 5.92 per cent in Q4FY16 on QoQ basis. However, sector posted net profit of Rs 1809 crore in Q4FY16 against net loss of Rs 26.4 crore in Q3FY16. Capital goods sector’s bottom line eroded quarterly basis just because of Bharat Heavy Electricals as the company posted a net loss of Rs 1102 crore in Q3FY16.
However, the industry major Larcen & Toubro’s revenue increased by 18.32 per cent to Rs 33157 crore in Q4FY16 on yearly basis. The company’s operating profit too rose by 35.16 per cent to Rs 4859 crore in Q4FY16 as compared to same period in previous financial year. Its net profit also increased by 19.31 per cent to Rs 2578 crore in Q4FY16 on yearly basis.
The Cabinet approved National Capital Goods Policy during the beginning of the current fiscal year. It will further give boost for government’s Make in India vision. The joint task force of Department of Heavy Industry (DHI) and Confederation of Indian Industry (CII) gave inputs to this policy. This policy will be beneficial for the sector when government has plans such as smart cities, housing for all and industrial corridor.
The capital goods policy attempts to the increase the contribution of this sector to 20 per cent from current 12 per cent of total manufacturing activities by 2025. Share of domestic production in India’s total demand would be raised from 60 per cent to 80 per cent, and exports are targeted to go up from the current 27 per cent to 40 per cent of production to make India a net exporter of capital goods. The policy also aims at facilitating improvement in technology depth across sub-sectors, increase skill availability, ensure mandatory standards and promote growth and capacity building of MSMEs.
Cement Sector
In March quarter 2016, India’s cement demand has grew-up largely driven by increased government spending. On an aggregate basis, the 23 companies in the sector we have analysed have posted topline and EBITDA growth of around 2 per cent and -0.50 per cent respectively for the March quarter 2016 on a YoY basis. As the large companies recorded growth around 15.6 per cent and significant increase in sales volumes on a YoY basis whereas realisation cost de-grew at around 8 per cent in corresponding quarter of the previous year.
As per industry data, all‐India cement production grew by more than 11 per cent YoY at around 80 million tonnes. Cement demand picked up significantly largely led by pick up in infra activities and low base (Jan‐March 2015 growth at around 2 per cent). South Indian companies saw strong demand from Andhra Pradesh, Telengana whereas non-south cement companies have started seeing pickup in demand from road and government housing projects. For the full year FY16, cement output grew by increased by 4.7 per cent against 5.6 per cent the corresponding period of previous year.
All‐India prices fell by 4.8 per cent on QoQ basis whereas 7.2 per cent down on YoY basis on weakness in prices across regions. In north, after witnessing stiff price competition over the past few months, prices finally started improving in February as discipline re‐emerged after prices reached unsustainably low levels. On the other hand, prices in south fell as much as Rs 50 to Rs 250 per bag primarily due to intense competition and continued weakness in demand. Eastern region too saw prices weakening as slowing demand and increased supplies. The price surge seen toward the end of Q4, particularly in the northern market, should reflect in Q1FY17. On the volume front, Orient Cement and JK Lakshmi Cement reported growth of around 40 per cent led by capacity expansion. Shree cement reported growth of 29.5 per cent due to capacity expansion and pick-up in demand.
During the quarter, the industry EBITDA margin declined by 42 bps points from 17.29 per cent to 16.87 per cent due to lower realisation. Profitability in EBITDA per ton was marginally declined on YoY basis however improved substantially on QoQ basis. Prices of major items like power, freight and coal remained range-bound and therefore overall cost inflation was under control. Pet coke prices are likely to be lower during the quarter on account of exhaustion of high-cost inventory of pet coke, which will result in lower operating costs for most companies.
We believe the current scenario to improve further as demand from infrastructure activities and low-cost housing has started some movement. Additionally, in southern region we expect demand from Telangana state and the new capital city Amravati to come. These factors will aid in gradual improvement in utilization rates for the industry leading to better pricing power to manufacturers. Further, slowing capacity addition will aid in improving the fortune of the industry. Going forward, with expectations of normal monsoon likely leading to revival of rural economy and pick up in infrastructure activity in second half of FY17, leading to a strong FY17 for cement.
| Volume (million ton) | Realization (Rs/ton) | EBITDA (Rs/ton) |
| Jan-Mar 2016 | YoY (%) | Jan-Mar 2016 | YoY (%) | Jan-Mar 2016 | YoY (%) |
| UltraTech | 13.6 | 14.7 | 4,732 | -8.5 | 945 | -9.1 |
| ACC | 6.4 | 9.3 | 4,603 | -7.2 | 582 | -18.3 |
| Ambuja Cement | 5.9 | 9.5 | 4,127 | -8.9 | 723 | -18.0 |
| Shree Cement | 5.4 | 29.5 | 3,363 | -4.9 | 943 | 14.5 |
| Dalmia Bharat | 3.9 | 21.0 | 4,930 | -7.5 | 1349 | 21.0 |
| India Cement | 2.5 | 18.0 | 4,610 | -3.9 | 844 | 2.3 |
| Birla Corp | 2.2 | 17.3 | 3,399 | -8.7 | 612.0 | 84.3 |
| J K Cements | 2.2 | 13.8 | 4,362 | -8.5 | 794 | -4.5 |
| Ramco Cement | 2.1 | 10.9 | 4,692 | -8.4 | 1478 | 16.1 |
| JK Lakshmi Cement | 2.2 | 39.1 | 3,405 | -8.6 | 398 | -13.6 |
| Prism Cement | 1.4 | -9.4 | 3,757 | 0.2 | 576 | 31.9 |
| Heidelberg Cement | 1.1 | 2.2 | 3,578 | -3.3 | 579 | 0.5 |
Construction and Infrastructure Sector
Government’s push towards infrastructure development is clearly visible across the key segments with the total expenditure spending has been in-line with the target budgeted amount of total spending stood at around 90 per cent of the target. Roads & highways and urban infra segments have been witnessing strong growth in Q4FY16. NHAI has awarded around 3500kms (worth approx. Rs 400 bn) during FY16 (against the target of 5600 kms) of which over 70 per cent in EPC space. In Q4FY16, more than 2500 kms of road projects have been awarded by NHAI and MoRTH. Urban infra space has also gained momentum with the focus on metro rail projects and development of smart cities.
On an aggregate basis, the 36 companies in the sector we have analysed have posted topline grew by 12.5 per cent in Q4FY16. Ordering activity remained strong for the road sector. Government has also moved up the pace of construction during FY16 and it stood at an average of 16km per day. During the fiscal 2016, government has made it easier for developers to monetise their operational projects and has also moved to expedite construction of new highways through models like hybrid annuity where the government commits 40 per cent of the total project cost.
Order inflow: In Q4FY16, IRB had received LoA from MoRTH for order worth Rs 10,050 crore on January 3, 2016, the biggest National Highway project in India in terms of project cost. However, the bid process for the project got cancelled on March 1, 2016. KNR has not witnessed any order inflows from NHAI and reported a small Rs 295 crore flyover order from Tamil Nadu. Q4FY16 PNC Infratech has added three EPC road projects of total Rs 2318 crore in Q4FY16. As a result, total order intake in FY16 stood at Rs 3970 crore. While, NBCC added just one third new orders in Q4FY16 as compared to strong Q3FY16 with over Rs 8,520 crore of order inflows. In terms of opportunities, the company expects orders from redevelopment of three old colonies worth around 25,000 crore and several other redevelopment projects. The company expects to get approvals for the redevelopment of three colonies from government by July, 2016. Ahluwalia Contracts booked Rs 200 crore and Rs 1,500 crore of orders in Q4 and FY16 respectively and stands L1 in orders worth Rs 670 crore.
In the EBITDA margin front, we have seen marginal expansion by 89 bps YoY to 14.43 in Q4FY16. L&T’s infrastructure segment’s revenue growth rebounded in Q4FY16 to 20 per cent YoY driven by transportation infra, heavy civil and water businesses. EBITDA margins rose to 16.4 per cent, up 280 bps due to progress in execution of projects and favourable input costs. Ahluwalia’s EBITDA margins expanded 490bps YoY to 13.9 per cent driven by cost rationalisation measures.
We have also seen improvement in working capital cycle in few companies coupled with debt reduction which was resulted in improving net profits whereas diversified Jaypee Group companies have defaulted on loans and other payments worth Rs 4,460 crore.
During FY16, healthy ordering activity was witnessed in the road sector specifically in EPC and BOT segment. Hybrid annuity projects also witnessed increased interest from bidders during Q4FY16. We expect the momentum to be maintained going forward. Going forward, ordering activity is likely to jump up sharply for road EPC projects along with power transmission as well as railways. Building segment is likely to see revival mainly from government projects while private sector capex is yet to take few more quarters to move up.
With banks already passing on cut in the interest rates, working capital management, debt reduction and asset monetization are likely to be key triggers for the sector going forward. We expect the momentum in the road sector to continue while government buildings, bridges, irrigation, water supply and urban infra are also likely to see increased traction going forward.
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FMCG Sector
Companies engaged in the FMCG sector posted a muted performance with single-digit revenue growth in the March quarter due to urban demand continuing to remain sluggish and rural demand impacted by crop loss due to two successive poor monsoons. On an aggregate basis, the 35 companies (24 staples + 11 discretionary) in the sector that we have analysed, posted topline growth of 7.14 per cent and bottomline growth of 14.16 per cent on a YoY basis. The revenue growth of the FMCG sector was largely driven by volumes as a sharp decline in commodity cost compelled companies to partly pass on the benefit in terms of price cuts in the quarter.
If we look on the volume side, Britannia reported volume growth of 10 per cent whereas Godrej Consumer’s domestic business posted volume growth of 9 per cent YoY. Dabur reported 7 per cent volume growth led by strong growth home care, oral care & foods segment. HUL registered volume growth of 4 per cent which was lowest in the last six quarters whereas Colgate reported 6 per cent volume growth during the quarter but domestic volumes grew by 4 per cent, implying exports bumped up growth. Marico’s net sales grew 6.5 per cent YoY mainly led by 10.5 per cent overall volume growth. However, price cuts owing to soft input costs remained a drag on the topline. Nestle India posted a 8.4per cent YoY decline in sales while 17.9 per cent on a sequential basis, hinting towards a stable recovery trajectory.
If we look at the smaller companies, Jyothy Laboratories reported 13.7 per cent volume growth due to six power brands (Ujala, Henko, Maxo,Pril, Exo & Margo) witnessing robust growth. Bajaj Corp de-grew its volumes by 4 per cent (YoY) whereas Emami reported 6.5 per cent YoY organic volume growth was promising led by strong growth in Boroplus and Zandu health care and balms. ITC’s cigarette segment, reported marginal growth of 0.5 per cent in cigarette volumes after 11 quarters whereas its agri business grew by 2.65 per cent YoY on a lower base. FMCG and hotels registered single-digit sales growth of 5.4 and 4.8 per cent YoY respectively.
In the case of consumer discretionary products, Asian Paints reported double-digit growth at around 13 per cent as against 5 per cent growth in Q4 FY15 on the back of a strong volume growth in lower end paint categories. Kansai Nerolac reported 10 per cent YoY topline growth largely driven by around 14 per cent YoY growth in volume with a change in the sales mix. Berger Paint’s domestic decorative segment reported volume growth at around 14 per cent.
Pidilite posted strong sales growth of around 19 per cent YoY led by 13-14 per cent volume growth as against 6.6 per cent volume growth in Q4 FY15 with consumer and bazaar growth at 21 per cent, while industrial segment grew by 7.5 per cent. Jubilant Foodworks’ revenue grew by 14 per cent along with same store growth of 2.9 per cent was positive for the sixth straight quarter but below the market estimates of around six per cent.
EBITDA margin front we have seen marginally expanded by 132 bps YoY to 20.58 in Q4FY16 even after agri commodities like palm oil, sugar and barley witnessed inflationary trend in Q4 and were up 14 per cent QoQ. Palm oil and sugar are up around 58 per cent and 54 per cent from their lows. The prices of some key inputs like crude oil were down 20.5 per cent QoQ and 36.1 per cent YoY; VAM prices (China) are USD 870/ton, down 6 per cent QoQ, HDPE prices are down 0.9 per cent QoQ and flat YoY.
Going ahead, in FY17, FMCG companies would witness volume-led growth in the next two quarters and see further pick-up in demand in the second half of the year.
Healthcare Sector
Healthcare being a defensive sector moves in isolation with the overall Indian markets. The demand for healthcare will remain ever rising and the sector is moving at a rapid pace due to its strengthening demographic and geographic coverage and increasing expenditure by public (government) and private players. The country also enjoys cost advantage as compared to the US and European peers.
Indian healthcare segment consists of hospitals, nursing homes and diagnostics centres, and pharmaceuticals, constitutes 65 per cent of the overall market which was worth 100 billion USD at the end of 2015. In the recent GDP that stood at 7.9 per cent, net profit from Healthcare contributed about 16 per cent.
India is the largest exporter of generic drugs globally accounting for 20 per cent of global exports in terms of volume. Today, the total exports of pharmaceutical products are Rs 84465.99 crores in FY 15-16 as against 70815.1 crores in FY 14-15 an increase of 19.28 per cent. Out of the total exports, Rs 23020.05 crores have been to the USA. Imports came in at Rs 9961.29 crores as against Rs 10742.08 crores an increase of 7.84 per cent. Imports from the US are worth Rs 1843.56 crores for FY 2015-16.
Considering the quarterly performance of a set of more than 230 companies, the healthcare sector’s revenues in Q4FY16 saw a growth of 4.19 per cent quarter-on-quarter and 7.58 per cent year-on-year. A set of major 8 companies saw a growth of 4.2 per cent QoQ and 4.9 per cent YoY in revenues. All in all, the revenue growth saw a recovery in Q4FY16 with FTF (first-to-file) right to patent launches in the US and recovery in the US markets after a marginal growth in Q3. The base business growth in major companies was affected by pricing pressures in the US and currency headwinds in potential emerging markets.
Among direct costs, the services and raw material costs remained flat as compared to the last quarter while drop of 4.48 per cent YoY. On the other hand, employee costs increased amid higher employment opportunities in the growth sector. The QoQ employee cost surged 1.8 per cent while YoY grew 11.5 per cent. Moreover, higher R&D costs have weighed on the profitability of the companies wherein in FY16 most leading companies spent nearly 8-12 per cent of revenues in R&D costs.
Sector’s operating profits were same as compared to the last quarter driven by the fall in major companies viz; Dr Reddy’s and Cipla. YoY operating profits rose 18.3 per cent as against 15 per cent growth in top healthcare companies.
Interest costs rose with the marginal rise in debt levels given inorganic investments. Interest costs grew at a rate of 15.2 per cent QoQ and 10.9 per cent YoY. Sector’s bottom line dropped noticeably by 9.7 per cent. The pharma majors Cipla and Dr Reddy saw a fall in QoQ net profits by 72 and 88 per cent. On the other hand, the overall sector’s net profit witnessed a spike of 72 per cent YoY. Among the majors, Torrent and Sun Pharma saw a rise of nearly 170 per cent YoY.
The growth trajectory in near term to remain muted given the relatively moderate proportion of large size drugs going off patent, higher competition, saturation in generic drugs, regulatory overhang along with base effect catching up.
In the coming days, Wholesale Price Index being negative for CY2015, any negative price hike for drugs under the price control would impact the value of growth. Access and affordability are the biggest bottlenecks in healthcare growth where maximum domestic population is dependent on public facilities as private are out of their reach. Exports at cheaper than the US and Europe, internal prices is the only way out for Healthcare.
Penetration of technology into healthcare sector can help the sector reach rural areas of the country with shortages of facilities. Many healthcare companies recently received the US Food and Drug Administration (USFDA) approval for their drugs which acts as an opportunity for higher sales.
Metal sector
The metal sector plays a pivotal role in the Indian economy and its growth is of a paramount importance. The sector comprises of aluminium, zinc, mining and minerals, non-ferrous metals, steel, alloy steel, sponge iron, tubes and pipes etc. The sector has a major consolidation from steel and mining industries and therefore is the major indicator of growth for the sector. In the union budget of 2016 finance minister, Arun Jaitley announced to spend approximately Rs 27000 crores on roadways and Rs 55000 crores on highways which should indirectly boost the demand for this sector especially steel.
In 2003, India ranked 8th in terms of production of steel in the world. However in 2015, India was the 3rd largest producer of steel in the world and will be the no 2 nation by the end of 2016. Construction, infrastructure and automobile sector are the major consumers of steel. Therefore, their prosperity will directly influence the demand and growth of the industry.
Companies in the steel industry are investing heavily in expanding their capacity. Major public and private companies, including Tata Steel, SAIL and JSW Steel are expanding their production capacity. Steel production is expected to reach 200 million tonne per annum (MTPA) by 2020 compared to 91.46 million tonne per annum (MTPA) in 2015.
India ranked 6th in the world in the production of zinc. Hindustan Zinc is the largest producer of zinc in the country and second largest producer in the world. India produces more than 2100 tonnes of aluminium and ranks 5th in the world in the production of aluminium.
It should be noted that while analysing the metal sector, a total of 245 companies operating in this sector were exhaustively put together and analysed with its volumes and net profits. The industry’s top line declined by 13 per cent to Rs 119193 crore in Q4FY16 as compared to same period in previous financial year. The sector’s operating profit also reduced by 32 per cent to Rs 11059 crore in Q4FY16 on yearly basis. Its net loss narrowed down from Rs 23188 crore in Q4FY15 to Rs 16617 crore in Q4FY16.
Considering sequential basis, the metal sector’s revenue increased by 5 per cent in Q4FY16. The industry’s operating profit too rose by 25 per cent in Q4FY16 as compared to previous quarter. Meanwhile, its net loss was posted to be of Rs 16617 crore in Q4FY16 while net loss of Rs 5279 crore was posted in Q3FY16.
[PAGE BREAK]Industry major, Tata Steel’s net sales have plunged 12.5 per cent from Rs 33337 crore made during the corresponding quarter of the last year. The company’s EBITDA has risen by 42.9 per cent from Rs 1543 crore. Its net loss saw a recovery in Q4FY16 as compared to the loss it made in Q4FY15 which was quoted at Rs 5702 crore.
JSW steel has been the best performer in terms of profits as the company has seen an increase in net profits by more than four times. All the major companies have managed to be in green apart from SAIL which reported a loss of Rs 1528.73 crores in this quarter.
The turmoil of this sector is largely associated with the recent crisis in China. Chinese buyers demand more industrial metals than the rest of the world combined. When China experiences strong growth and expands its infrastructure, the prices of industrial metals rise to a higher level. The Chinese real estate and industrial sectors are larger than any other countries’ in the world. The recent Chinese traction in August 2015 has taken a toll in the prices and demand for this sector, which has affected the demand for this sector worldwide. The world economies also recorded a sluggish growth and liquidity problems. Chinese economy recorded a single digit growth GDP growth for the first time in 25 years. The Indian real estate and industrial demand also remained muted during this period with rural and agriculture demand remaining sluggish due to two consecutive droughts.
BSE metal index is the good indicator of performance of metal sector. From June 4 2015 to June 4 2016 the index is been down by 13 per cent.
Oil and Gas
The oil and gas sector is among the six core sectors in India and it plays a major role in influencing decision making for all the other important sections of the economy.
In 1997–98, the New Exploration Licensing Policy (NELP) was envisaged to fill the ever-increasing gap between India’s gas demand and supply. India’s economic growth is closely related to energy demand; therefore, the need for oil and gas is projected to grow more, thereby making the sector quite conducive for investment.
Government of India has adopted several policies to fulfill the increasing demand. The government has allowed 100 per cent Foreign Direct Investment (FDI) in many segments of the sector, including natural gas, petroleum products, and refineries, among others. Today, it attracts both domestic and foreign investment.
India is the fifth-largest Liquefied Natural Gas (LNG) importer after Japan, South Korea, the United Kingdom and Spain and accounts for 5.5 percent of the total global trade. The LNG imports had increased by 24 per cent year-on-year in January 2016 to1.98 Billion Cubic Metres (BCM). Domestic LNG demand is expected to grow at a CAGR of 16.89 per cent to 306.54 Million Metric Standard Cubic Meter per Day (MMSCMD) by 2021.
It should be noted that while analysing the metal sector, a total of 29 companies operating in this sector were exhaustively put together and analysed with its volumes and net profits.
The result of the oil and gas sector has been slightly sluggish; the sector has reported a net profit of Rs 8931 cores for Q4FY16. Whereas the sector a year ago had reported a net profit of Rs 23174 crores. Net profit has declined by 61 per cent (YoY) and by 43 per cent as compared to the adjacent quarter. The sector’s revenue for Q4FY16 stands at Rs 27651 crores. The revenue on YoY has decline by 14 per cent on (YoY). Operating profits for the full year period have also decline by 19 per cent, and stands at Rs 3184.85 crores.
Considering, the industry major Indian Oil Corporation’s net sales decreased by 14.26 per cent to Rs 80450 crore in Q4FY16 as compared to same period in previous fiscal year. The company’s net profit declined by more than five times to Rs 1235 crore in Q4FY16 on yearly basis. Other oil & gas conglomerate, MDAG promoted Reliance’s top line reduced by 10.70 per cent to Rs 60252 crore in Q4FY16 as compared to same period in previous financial year. Reliance’s net profit increased by 13.69 per cent to Rs 7385 crore in Q4FY16 on yearly basis because of its seven-year high gross refining margin (GRM) at 10.8 per barrel during the quarter.
As compared to the growth in the net profit over the period on one year, Alphageo India, ranks 1 as its profits over the period of 1 year has grown by 92 times. Amongst the major giant GAIL and Gujarat State Petronet, are the major profit making company for the sector with GAIL recording 51 per cent increase in profits while Gujarat State Petronet recording 49 per cent increase over 1-year period. Reliance Industries and ONGC are also in the league of profit making companies. The profits for the year for these two companies have grown by 14 and 12 per cent respectively.
Bharat Petroleum Corporation (BPCL), Oil India are the major companies which saw a decline in their net profits on a YoY. BPCL saw a decline of 11 per cent in the profit while Oil India’s profits plunged by 15 per cent. Aban Offshore in Q4FY 16 posted a net loss of Rs 112 crores; however, in the same quarter a year ago the firm reported a profit of Rs 115 crores.
India is one of the major oil importing country; low crude oil prices to large extend has benefited the country and major oil marketing companies have a reported positive numbers. However, being lower crude oil impacted most of the oil extraction companies overall in the sector.
The oil and gas index from the period June 4, 2015 to June 3, 2016 is marginally down by 1 per cent. However, the index as compared to the last 6 months is down by 2 per cent. The recent trend of increase in crude oil prices internationally is the major reason for the plunge in the index.
Power sector
A recent proclamation that India will not have power deficit anytime in future from FY17 was a jaw dropping event in the history of Indian power sector. The gloomy power sector is all set to be back in the limelight in near future. The country will have a power surplus of around 3.1 per cent and 1.1 per cent during peak and non-peak hours during 2016-17 except for some regions in northern states that may lead to 1.8 per cent deficit. The basic raw material, coal output has increased significantly bringing life to the shut power generation plants. Moreover, the UDAY scheme has been launched to rejuvenate power distribution. Public and private companies are all set to save 1.8 lakh crore per annum from 2019. So far 18 states and 1 union territory is a part of the UDAY scheme.
Indian power sector is the catalyst of Indian economic development but has always remained as the unrewarded sector of the Indian stock markets. The investors have remained hesitant towards the sector as the companies therein are caught up under huge debts.
However, India still banks on the power sector being the fifth largest producer and fifth largest consumer in the world. The electric utility sector has an installed capacity of 302.833 GW as of 30th April 2016 out of which non-renewable power plants contribute 72 per cent.
As of March 2016, the total Thermal installed capacity 210675 MW out of which coal contributed the highest at nearly 88 per cent. Otherwise Gas and diesel contributed 11.5 per cent 0.5 per cent respectively. On the renewable front Nuclear generated 5780 MW while Hydel led to 42783 MW. Overall the total installed capacity grew 11.3 per cent.
Considering the quarterly performance of the power sector specifically the electric utility companies, the revenues earned from a set of 38 companies in power sector have shown a growth of 6 per cent as compared to the last quarter (QoQ) and 14.2 per cent from the corresponding quarter of last year (YoY). The revenues were majorly driven by the Adani group of companies and smallcap stocks.
From the direct costs most of the major companies do not incur raw material costs and hence though negligible to mention but the cost of raw material grew at a pace 20.1 per cent QoQ and 12 per cent YoY. The major raw materials account to fuel and coal costs. The hike in both fuel and coal prices stimulated the cost for the companies. Crude oil price recovery since the end of Jan 2016 and series of hikes in coal prices weighed on the power generation companies.
On the contrary, the company saw a reduction in the employee cost at 2.5 per cent QoQ and 3.4 per cent YoY. The operating profit for the sector rose 11.5 per cent QoQ and 32.7 per cent YoY.
The interest cost which is a major concern for the power industry increased by 7.2 per cent QoQ and 23.4 per cent YoY.
Power generation during FY15-16 was posted at 1107.822 billion units as against 1048.673 billion units in the previous year. However, the growth in power generation dropped to 5.64 per cent in Fy15-16 from 8.43 per cent in the previous year. Going forward, energy requirement in FY 16-17 is estimated at 98189 million units and the availability still remains at 96968 million units forming a deficit of 1.2 per cent. This is where the power generation companies have a bright opportunity.