The bad numbers came in a torrent right through the day. First, Dr Reddy’s Laboratories said its second-quarter net profit was down 52 per cent year-on-year, though turnover was up 29 per cent. Later, Grasim and Bajaj Auto both reported a 22 per cent decline in net profit for the quarter. ACC said net was down 7.7 per cent.
In the evening, Reliance Industries said its net grew just 7.43 per cent during the quarter. During the same quarter of the previous year, India’s largest private sector company had reported net profit growth of 27.9 per cent.
The worst fears of shareholders and investment analysts seem to be coming true: Results declared so far show that earnings of India Inc have taken a hard knock in the July-September 2008 quarter. Blue chips like Larsen & Toubro, TCS and Wipro have reported a dip in net profit growth, though a handful like Hero Honda, Sterlite and GAIL (India) have shown a sharp increase.
| HOW SOME BLUE-CHIPS FARED | |||
| Net profit growth rates (%) | |||
Numbers crunched by the Business Standard Research Bureau show that the net profit of the 424 companies that have so far declared their results grew just 8.14 per cent in the July-September quarter, down from 25.75 in the same quarter of the previous year and from 14.18 per cent in the April-June quarter.
The numbers appear worse if the 54 banks and non-banking finance companies, which are grappling with mounting non-performing assets, are taken out of the list. Then, the net profit growth of the 370 companies for the quarter falls to 7.29 per cent, down from 22.9 per cent in the year-ago quarter and 14.58 per cent in the previous quarter.
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Clearly, the party seems to be over for industry and the services sector. Aided by double-digit inflation, sales growth at 31.14 per cent for the quarter, however, was higher than 16.76 per cent in the year-ago quarter but slightly lower than 32.16 per cent in the previous quarter.
Experts Business Standard spoke to said this shows that the business environment is getting tough — companies are sacrificing profit to maintain sales growth. Cement, steel, automobile and hospitality companies said there was a perceptible demand slowdown in the July-September quarter thanks to the tight liquidity condition enforced by the Reserve Bank of India in its bid to rein in runaway inflation.
"This quarter has been largely disappointing. Though revenues have grown, net profits have registered, at the most, single-digit growth. There will be further downgrades in the next quarters across sectors,” said India Infoline Vice-President (research) Amar Ambani.
With the global economic meltdown worsening since mid-September, clearly worse numbers can be expected in the coming quarters. The only relief could be the recent fall in prices of key commodities.
Looking forward, analysts said the outlook for automobiles (cars and commercial vehicles) remains bleak on account of high interest costs. Almost 90 per cent of such purchases are financed by banks and finance companies. Overall growth for the industry during the year is now pegged at 7 per cent, more or less the same as last year.
“The next quarters will be challenging. Commodity as a whole will be the most affected because of the downturn,” said Motilal Oswal Securities Vice-President (equity strategist) Manish Sonthalia. With the slowdown in real estate, the cement industry has not been able to pass on the surge in costs of inputs like coal, gypsum and freight. Cement major ACC is of the view that consumption in the coming months, particularly in the housing sector, may decline.
Falling prices and costlier inputs have doubly hit domestic steel industry’s profitability. While exports have turned unprofitable on account of export duties on certain varieties, raw materials like coking coal and scrap which are imported have turned costlier due to a depreciating rupee. Companies that do not have captive mines (which means all except state-owned Steel Authority of India and Tata Steel) could bleed further in the days to come.
India’s information technology majors, too, are reeling under the impact of the global slowdown. TCS posted flat growth for the July-September quarter, Satyam cuts its dollar-revenue guidance for 2008-09 and Wipro Chairman Azim Premji termed the business outlook cautious.