As expected, the corporate sector has fared badly during the third quarter ended December 2008 with 401 companies in the manufacturing and services sectors posting their biggest-ever decline of 28.3 per cent in net profit, on sales growth of 15.8 per cent. The net profit of these companies had declined by 8.3 per cent during the quarter ended September 2008.
The poor profit performance is clear from the fact that 106 companies out of the sample of 401 posted a net loss of Rs 4,715 crore in the third quarter, compared with a net profit of Rs 1,267 crore in the same period last year. As many as 142 companies in the sample reported a 24.5 per cent decline in net profit, 134 reported a 23.1 per cent growth in net profit and 19 reported a turnaround during the quarter with a net profit of Rs 56 crore against a net loss of Rs 91 crore.
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| (Rs crore) | 2007 | 2008 | % Chg |
Three refineries — Chennai Petroleum (net loss of Rs 1,270 crore), Mangalore Refineries (net loss of Rs 285 crore) and Bongaigaon Refineries (net loss of Rs 224 crore) — together posted a net loss of Rs 1,779 crore due to a decline in gross refining margins. Petrochemical giant Reliance Industries too posted a decline of around 10 per cent in net profit on account of decline in refining margins.
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Among others, Ranbaxy Laboratories posted a net loss of Rs 807 crore due to mark-to-market losses on account of currency fluctuations, Spice Communication reported a net loss of Rs 740 crore in commencing GSM operations in four additional service areas for which it paid a licence entry fee of Rs 484.46 crore to the Department of Telecommunications (DoT).
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Several large-cap companies posted a decline in net profit on account of decline in sales, higher cost of production, lower price realisation and provision for mark-to-market losses. Among large-cap companies which showed a decline in sales and net profit are Reliance Communication, Bajaj Auto, Hindustan Zinc, Divi’s Lab, GTL, Kirloskar Oil Engines and Greaves Cotton.
As many as 50 companies in the sample have made provision for MTM loss of Rs 2,752 crore as a result of which their aggregate net profit has declined by 25 per cent.
The companies with MTM loss of over Rs 100 were TCS, KPIT Cummins, Infosys Technologies, Wipro, Ranbaxy Laboratories, Jet Airways and Ashapura Minechem.
Among companies which suffered from a decline in international prices was Hindustan Zinc, a subsidiary of Sterlite industries that posted a 37 per cent decline in net sales due to lower price realisation of zinc and lead. The average LME prices of zinc declined 55.1 per cent and lead declined 61.7 per cent. This led to a sharp drop in operating margins that plunged to 28.5 per cent from 63.6 a year ago. No wonder, the net profit of the company has declined by 55.8 per cent to Rs 368.8 crore.
On the other hand, Bharti Airtel, which earns its major part of revenues from India, recorded an impressive 38.3 per cent growth in revenue on the back of 41.5 per cent growth in mobile services business. Bharti’s mobile subscriber base grew by 55.3 per cent year-on-year. The company, however, recorded a 160 bps decline due to higher network operation costs.
The rupee depreciation proved positive for IT companies as more than half of their revenues are derived from exports. However, as these companies have a significant forex cover, they have to provide for MTM losses. Infosys reported exchange fluctuation loss of Rs 218 crore, TCS Rs 251 crore, Wipro Rs 108 crore and KPIT Cummins Rs 104 crore.
Infosys Technologies posted a strong 34.7 per cent rise in net profit on a 35.8 per cent rise in revenues from software services. The quarterly revenue of TCS grew 23.1 per cent, while its net profit rose only by 2.8 per cent.
India Inc is expected to do badly in the October-December quarter. Corporate analysts expect the banking and finance, software services and telecom sectors to be among the best performers, while earnings of automobiles, oil and gas, real estate and cement firms may come under pressure on account of a decline in sales and lower price realisation.
Additional contribution with Sameer Mulgaonkar and Ashok Divase