Hold the bubbly: India Inc's Q1 show isn't all that great

Manufacturing and services firms report flat net profit growth, decline in sales

The morning doesn’t always show the day. After the early birds surprised many with their decent increase in net profits, a detailed analysis of the performance of 2,088 manufacturing and services sector companies (excluding banks and finance firms) shows that net profit has indeed gone up — but only just.
 

STILL SHAKY (Quarterly growth rates in %)
Quarter ended	Sales	Net profit
Jun-08	37.91	10.03
Sep-08	37.81	-32.74
Dec-08	11.03	-36.93
Mar-09	-1.52	2.70
Jun-09	-6.41	1.64

These companies have shown a net profit jump of 1.64 per cent, though sales have declined 6.41 per cent compared to the corresponding period of the previous year. The bad news is that net profit growth would have actually declined, but for the turnaround by three public sector oil marketing companies — BPCL, HPCL and Indian Oil Corporation — on the back of falling oil prices.

The 30 Sensex companies appear to have performed much better: net profit is up 5.57 per cent and sales are down 3.12 per cent. But adjusted for extraordinary income, the net profit has declined 2.28 per cent. The performance could have been better but for the indifferent show by eight companies in the list — DLF, Hindalco, ONGC, Reliance Industries, Sterlite Industries, Sun Pharma and Tata Steel.

There are, however, a few points to cheer about. For example, the aggregate numbers look much better if the results of the banking and financial services companies are included. In that case, the aggregate net profit of 2,500 companies is up 18.5 per cent, while sales are down 7.01 per cent.

Also, operating margins have increased by 141 basis points to 11.73 per cent on the back of a decline in raw material prices, excise duty cuts and better cost efficiency measures.

Analysts said the earnings story would be better if demand picks up and companies register higher sales growth.  A Citigroup report said “rising margin was good, but rising sales would probably be better”.

The sectors which have done well in sales are automobiles, capital goods, construction, cement, engineering, pharmaceuticals, power, sugar and telecom services providers. And the ones which have shown a dip in sales are airlines, auto ancillaries, automobiles, chemicals, fertilisers, hotels, non ferrous metals, oil and gas, retails, realty, steel and shipping.

Predictably, the real estate sector has been hit the most due to the economic downturn. With two leading realty companies, DLF and Unitech, reporting a significant decline in revenue and profit, the sector’s sales were down 54 per cent while net profit plunged 75 per cent. Steel companies also suffered, reporting  a 16 per cent decline in sales and 37 per cent decline in net profit.

Cement companies, riding on demand and price rise in the central and eastern regions, performed well with net profit rising 31.42 per cent and sales 22.9 per cent.

Construction firms have also come out with encouraging numbers on the back of  healthy order books and investment in infrastructure by the government.