Markets
BSE See NSE See 39,046.34
85.55 (0.22%)
collapse Related Readings collapse

Q2FY12 - India Inc on a slippery path

| 11/21/2011 11:27 AM Monday

We have seen India Inc. swimming against the tide quarter after quarter and emerging victorious by posting a good set of numbers on many an occasion. But sometimes, the tides get just too rough to handle and every attempt at swimming against them only tires you out without much success. The results for the September 2011 quarter seem to be echoing a similar story for India Inc. While rampant inflation, rising interest costs and weakening IIP numbers have already been playing spoilsport for quite a few quarters now, the situation has only been aggravated further with a new irritant entering the scene – mounting forex losses posted by the companies. These have only made matters worse for India Inc., whose bottomline seems to be weakening at its knees.

The September results season has almost ended, with the results of 2667 companies with us so far. With a consolidated topline growth of over 23%, India Inc. continued to show strong resilience in this quarter too. This is quite a relieving picture really, in an overall scenario like the one we are in presently. However, the excitement over a decent topline growth suddenly turns glum when you
look at the bottomline. The net profits have declined sharply by about 36% over the corresponding period! Can this really happen? There seems to be some kind of a disconnect here.

A deeper scrutiny of the data reveals that during September 2010 the net profits were skewed due to the onetime gain of Rs 16209.90 cr that Piramal Healthcare saw from the sale of its business to Abbott, while on the other hand, profits for the quarter ended September 2011 look stunted due to the highest-ever loss posted by Indian Oil Corporation during the quarter.

Thus, to get a clearer picture, we adjusted these aberrations and removed the numbers of PSU oil refinery companies, extraordinary items and the numbers of Piramal Healthcare. This brought in some rationality, with the topline growing at an even stronger rate of 23%, while the bottomline actually grew by close to four%.

Though this looks much better than the gross numbers, the adjusted numbers aren’t something to get hugely excited about. They are a clear reflection of the state in which the Indian economy currently is, in the light of unbridled inflation and rising interest costs. With inflation averaging at 9.6% on a fiscal-to-date basis, the five rate hikes since May 2011, the IIP falling consistently over the last quarter to a mere 1.81% as on September 2011 and the economy growing at 7.7% (the weakest in the last six quarters, not to forget the forex losses), it is indeed wishful thinking to expect India Inc. to perform well amongst these adversities.

While steep inflation has pushed the input costs up by a huge 31%, we would also like to bring to your notice the sharp rise in the interest cost. Even after adjusting the interest cost of banks and financial institutions, the interest cost for the September 2011 quarter has shot up by a massive 49% or Rs6797 cr. Now, this is quite huge for India Inc., as the rate hikes effected in quick succession have increased the interest burden on the existing debt.

A deeper look into the numbers suggests that the situation has only worsened. Out of the total of 2667 companies, the net profits of 1194 companies increased, those of 1329 companies declined while those of 144 companies remained stagnant on a YoY basis. In fact, the number of lossmaking companies increased by 26% to 695  companies in Q2 FY12. This is higher than the increase by 636 companies seen in Q1 FY12 and 538 companies seen during Q2 FY11. The only saving grace here is the sales figures, where out of the total of 2667 companies, the sales of 1648 companies increased, those of 774 companies declined and those of 245 companies remained stagnant.

In fact, if you go a little further and look at the numbers from the manufacturing and services point of view, it can be seen that while the adjusted topline growth for the manufacturing sector remains strong at 21%, the bottomline has managed to grow by five%. This is commendable, and shows the resilience of these companies despite the fact that manufacturing has been the worst affected by inflation and interest costs. What is even more shocking is that the adjusted bottomline for companies in the services sector increased by a mere 1.80%, though the topline increased by a strong 27%. Similarly, a comparative analysis between the PSUs and the private sector shows that while the PSUs (excluding oil marketing companies) managed to post almost a 20% bottomline growth, the private sector has let us down, with profits declining by almost 53%.

All in all, it is not a pretty picture to look at, and this may only deteriorate in the coming quarters. Rising inflation (already on a high base) and the lag effect of rate hikes will only increase the uneasiness for India Inc. going forward. The concerns have been only on the bottomline front till now, but going forward, these may creep up on the topline front too, as we expect the demand to weaken in the wake of the factors mentioned above. Already, with the demand taking a beating, interest rate-sensitive sectors are feeling the heat. This could only spiral downwards in the coming quarters, as customers are expected to postpone their purchases.

Besides, with the cost of funds going up sharply, India Inc. is not only going slow on investments, but may also stall projects altogether. Thus, with capacity additions expected to take their own sweet time, darkness looms over the future growth prospects of India Inc. Moreover, what will also act as a dampener in the next two quarters is the high base effect of the December 2010 and March 2011 quarter numbers. In these two quarters, the topline grew by 19% and 22%, while the bottomline growth grew by a strong 17% and 18% respectively. Thus, with such a high base effect and concerns looming large, it is highly unlikely for India Inc. to be able to sustain growth.

One also has to understand that while the September 2010 profit growth was in single digits too, its tax outgo was still higher, thus indicating better quarters ahead. In contrast, the tax outgo in September 2011 has declined by 10%, thus indicating a weaker quarter ahead. If these numbers are not expected to sustain then the Sensex at the 16700 levels and a trailing PE of 18x looks more expensive at the current levels. Hence, with the earnings expected to weaken in the coming quarters, the probability of the Sensex slipping even further cannot be ruled out. Read on to view our sectoral analysis.

 

Find More Articles on: DSIJ Magazine, Cover Story, Corporate Trends, Product, Mid Cap

«« First « Previous |1 2 3 4 ... 7 8 9 10 11 12 13 | Last ››
news letter

More for the early bird.

Get the post-market reports and breakfast news right in your inbox. See latest »

DSIJ Mindshare

MIDHANI and HAL partner to develop bio implants

Geyatee Deshpande / Article rating: 5.0

Mishra Dhatu Nigam Limited (MIDHANI) signs an MoU with Hindustan Antibiotics Limited (HAL). This MoU will provide synergy for quality manufacturing of MIDHANI’s Bio-medical Implants and get access to the pan-India distribution of HAL. This partnership is aimed to gain advantage from the strengths of both the companies and benefit users of Bio-medical products in India.

12345678910Last

Tiger Logistics topline to grow by 10%--buoyant over infra sector status to logistics sector

Tiger Logistics topline to grow by 10%--buoyant over infra sector status to logistics sector

Logistics sector will play a vital role in making the concept of ‘Make in India’ a success. This will be further aided by some of the recent steps taken by Government of India such as granting of infra sector status to logistics sector.

Best and worst Performing Sector Funds of Year 2017

Best and worst Performing Sector Funds of Year 2017

As the year-end has approached most of you are eager to know the mutual fund movers and shakers of the year 2017. Read on to find the performance of various sector dedicated funds.

Markets may start positive, but volatility likely due to F&O expiry

Markets may start positive, but volatility likely due to F&O expiry

The start of the F&O expiry day is likely to be in the green, but volatility may creep in with the progress of the session. The SGX Nifty suggests that the Nifty could open at 10,525 with gains of 32 points at the opening bell. 

Pidilite announces buyback of Rs 500 crore

Pidilite announces buyback of Rs 500 crore

The buyback offer comprises purchase of up to 50,00,000 equity shares. The buyback offer size comprises 0.975 per cent of the total paid-up equity capital of the company.

Bank Nifty drags markets to close in the red

Bank Nifty drags markets to close in the red

The late session fall in Bank Nifty changed the direction of the market, leading to a marginal fall in the benchmark indices. Bank Nifty yet again resisted at its multiple point downward sloping trendline level at 25733.

Six major underperforming MF schemes having higher expense ratios

Six major underperforming MF schemes having higher expense ratios

Mutual funds with a large size of assets under management (AUMs) are supposed to have lower expense ratios. However, there are schemes with large AUMs but having higher expense ratios and generating lower returns. 

Nifty Pharma supports market; Sun Pharma at bullish reversal

Nifty Pharma supports market; Sun Pharma at bullish reversal

Nifty Pharma index has come in as the healer in an otherwise sluggish market. Index has given a consolidation breakout at the 9420 level today and if the it sustains 9420, followed by 9628 on the upside, it has a long way to go.

Ten stocks close to their 52-week low

Ten stocks close to their 52-week low

Following stocks are close to their 52-week low as at 12.35 p.m. on December 27.

Ten stocks close to their 52-week high

Ten stocks close to their 52-week high

The markets on December 27 opened gap down. BSE Sensex is trading at 34,068.15, up by 57.54 points and the Nifty is trading at 10,539.45, up by 7.95 points.

Five stocks with selling interest

Five stocks with selling interest

Overall volumes in futures & options currently stand at 62.75 lakh contracts with a turnover of Rs. 5,19,204.72 crore.