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Oil & gas boosts india inc's profits

Commodity-related sectors hurt, especially due to rise in raw material cost

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B G Shirsat Mumbai
Last Updated : Jan 20 2013 | 11:53 PM IST

The analysis of the first quarter (April-June) results reflects a slowdown in net profit growth rate, along with pressure on operating margins for India Inc.

Some sectors were hurt significantly. The revenue growth rate was hit in sectors such as automobiles, capital goods, chemicals, construction, sugar, pharmaceuticals, petrochemicals, realty, shipping and textiles. Sectors that were able to buck the trend, insofar as net sales growth is concerned, were oil and gas, trading non-ferrous metals, tyres, cement, telecom, fertilisers, steel and power generation.

In the case of growth in net profit, the oil and gas sector was the clear winner due to Cairn India and Essar Oil’s turnaround. Among other sectors, the net profit growth rate was significantly higher for packaging, hotels, metals, petrochemicals, entertainment, chemicals, fertilisers and shipping. Sectors that posted a sharp decline in net profit were telecom, textiles, sugar, tyres, paper, steel, cement, construction and consumer durables. Fast moving Consumer Goods (FMCG), software services, banks, power, automobiles and auto ancillaries showed a modest growth in net profits. (Click here for Money Makers)
 

FINANCIAL HEALTH
 

Sales growth (yoy in %)

Count*Sep ’10Dec ’10Mar ’11Jun ’11 Sensex2922.0819.1522.9425.63 Nifty4722.1719.3522.2226.29 BSE 1009522.7918.8323.8229.80 BSE 20018823.1119.7123.8530.01 BSE 50049923.7420.0823.9929.77 Mid cap24523.3522.6025.3524.06 Small Cap44326.3918.3521.3626.86 Total Sample248223.2620.0823.7728.25  

NP growth (yoy in %)

Sensex2933.6133.4511.3716.56 Nifty4735.3332.1113.4716.99 BSE 1009549.1132.2214.8817.94 BSE 20018865.2528.7516.9018.09 BSE 50049959.2329.2719.3214.60 Mid cap24516.1123.0830.811.27 Small Cap44319.7322.3524.914.23 Total Sample248255.6927.0616.9114.22 * Common Sample of companies for respective Categories
Compiled by BS research Bureau

Commodity-related sectors, like sugar, refineries, metals, packaging, plastics, leather, fertilisers and chemicals, saw pressure on their operating margins. Rising cost of raw materials hurt steel, cement, mining and metals, textiles, tyres, paper, automobiles and auto ancillaries. Even FMCG and pharmaceutical companies witnessed margin pressures on account of a rise in raw materials costs.

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Higher interest burden and cost of fuel hurt airline companies. Jet Airways and Kingfisher Airlines together reported a net loss of Rs 387 crore.

Among the profitable sectors, oil and gas remained the most profitable. Its net profits rose a whopping of 85 per cent. The aggregate net profit of the eight oil and gas companies stood at Rs 10,200 crore, largely on the back of Cairn India reporting a net profit of Rs 2,727 crore. The company is benefited from a rise in oil prices and the ramping up of production at its Rajasthan block. The net loss of Rs 3,719 crore by Indian Oil Corporation, however, indicates pricing pressure for oil marketing companies. MRPL, Oil India, Essar Oil and Reliance Industries also put up a good quarterly show.

Rising input costs, a higher interest burden and moderating demand has hurt the automobile sector. Aggregate net sales of the nine auto makers increased by 21 per cent, compared with 48 per cent in the same quarter the previous financial year.

The performance of commercial vehicles and passenger car segments was lacklustre, with a 3 per cent rise in net profit. Ashok Leyland reported a 29 per cent decline in net profit, compared to a significant turnaround in profit in the same quarter the previous financial year. Tata Motors maintained its profit, while Mahindra & Mahindra posted single-digit growth in net profit. Bajaj Auto’s rise in profit slowed to 21 per cent, while Hero Honda brought some cheer after four consecutive quarters of fall in profit.

The net profit of public sector banks declined on account of a higher provision for restructured portfolio and non-performing assets, in line with the Reserve Bank of India’s guidelines. Public sector banks’ performance was also hit by treasury losses and higher slippages due to migration to a system-based non-performing loans. Private banks, on the other hand, did well by posting 31 per cent rise in net profit, as ICICI Bank, HDFC Bank, YES Bank, among others, reported more than 30 per cent rise in net profit.

Capital goods companies reported a moderate performance. Their net sales growth rate declined to 15 per cent from over 20 per cent in the previous three quarters. Operating profit margins decline by 85 basis points, due to a rise in cost of raw materials.

The effect of a drop in the prices of metals like copper in the last three months should provide some respite to margins. Among giants, Larsen & Toubro did well with 12 per cent growth in net profit while BHEL’s profit growth rate declined to 22 per cent from 44 per cent in the same quarter the previous year. As expected, ABB, Crompton Greaves and BGR Energy disappointed.

Cement companies took a hit due to a slower-than-expected execution of infrastructure projects, a slowdown in the real estate market and the onset of the monsoon affected cement off-take in the first quarter. Their net sales, excluding UltraTech on account of merger, increased 14 per cent, while net profit declined by 8 per cent. Operating margins declined by 300 basis points. ACC, Ambuja Cement, Birla Corporation, Heidelberg Cement and Shree Cement reported decline in net profit, while Chettinad Cement, JK Cement and Madras Cement reported rise in net profit.

The software services companies remained strong. On a year-on-year basis, the top four companies reported sales growth of 25.3 per cent. TCS and HCL Technologies outperformed Infosys Technologies and Wipro. The net profit growth of the top four companies, however, moved at a slow pace of 18.3 per cent on account of decline in operating margins by over 150 basis points. The mid- and small-size companies recorded 20.7 per cent rise in sales and a 10 per cent decline in net profit on account of 450 basis point decline in operating margins.

The pharmaceutical sector has made a subdued start to the financial year, with net sales averaging at 14 per cent and net profit at 9.4 per cent. This was the second consecutive quarter of single-digit growth in net profit. The net sales growth of around 13-14 per cent has been for five quarters in a row. The lower growth is partially influenced by Ranbaxy’s sales growth (-2.3 per cent). Although Sun Pharma, Dr Reddy’s Labs and Lupin outperformed the sector, their net sales growth rate was hit by lack of significant US launches and price erosion on key products.

FMCG companies have maintained growth in sales on the back of higher volumes and increase in the product prices. The softening of commodity prices benefited FMCG companies to maintain profit growth. Operating margins declined by around 80 basis points as cost of raw materials moved at a higher pace of 28.8 per cent, compared to sales growth of 20.51 per cent.

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First Published: Aug 16 2011 | 12:43 AM IST

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