| Positive numbers, but outlook is cautious |
| Vishal Chhabria & Ram Prasad Sahu / Mumbai June 17, 2010, 0:40 IST |
While advance tax numbers suggest India Inc is in good health, the year may not turn out to be as promising.
Tuesday’s advance tax numbers suggest that India Inc is doing well. But it also indicates that the benefits of the ongoing economic recovery are being felt across sectors. The combined first installment of advance tax payment of 44 companies has risen by almost 20 per cent to Rs 7,273 crore. Although the list is not exhaustive and last year’s low base has helped, the 44 companies are among leaders in their respective businesses and represent 11 major sectors. Also, they represent about 40 per cent of total companies on the BSE (by market value), and hence, provide a reasonably fair picture of the underlying trend.
On the whole, the numbers were good. Says Ambareesh Baliga, Vice-President, Karvy Stock Broking, “the advance tax numbers were more than decent, especially the auto sector.” To know what the market reads into the numbers of top sectors and companies that matter, read on.
| ALL SECTORS IN POSITIVE ZONE | |||
| In Rs crore | June'10 | % chg | Mkt-cap |
| AUTO (6) | 420 | 62.60 | 197,411 |
| BFSI (14) | 3,238 | 6.80 | 606,859 |
| CAP GOODS (3) | 530 | 14.00 | 231,702 |
| CEMENT (4) | 247 | 3.30 | 62,813 |
| FMCG (2) | 119 | 5.80 | 85,462 |
| IT (2) | 403 | 42.40 | 306,824 |
| METALS (3) | 737 | 15.30 | 154,431 |
| OIL & GAS (3) | 994 | 71.70 | 418,505 |
| PHARMA (3) | 75 | 14.80 | 52,649 |
| UTILITIES (2) | 316 | 6.50 | 196,384 |
| TELECOM (1) | 179 | 79.00 | 102,362 |
| TOTAL (44) | 7,273 | 19.70 | 2,416,749 |
| Figures in brackets represent number of companies; % change is year-on-year | |||
Auto
The auto sector, as expected, turned in a good set of numbers with Bajaj Auto and M&M seeing their tax outgo more than double. Analysts say a low base last year and increasing sales of Discover will translate to higher year-on-year revenues and profits for Bajaj. Same is the case with M&M where tractor sales have picked up momentum due to the expectation of a good monsoon, loan waiver and higher minimum support prices (more income).
Both Maruti and Hero Honda have been consistent in their performance over the last year and have high base which along with a possible Euro impact in the case of Maruti is the reason for the muted increase in tax outgo for the duo. For Tata Motors, the advance tax numbers are an indication of strong CV sales. Given that emission norms implementation have been postponed to September of this year, the first half of 2010-11 for the company will be better. Going ahead, expect auto makers to maintain their revenues and margins due to the benign raw material cost environment and high operating leverage.
Banking
Most banks and housing finance major, HDFC, saw a good jump (ranging 15-60 per cent) in their advance taxes. However, the country’s top two banks disappointed. Says Manish Sonthalia, Portfolio manager — PMS, Motilal Oswal Securities, “Banking advance tax numbers were largely along expectations. However, while ICICI Bank’s tax outgo is flat it is also surprising (on negative side). It should have been more, given that its earnings are expected to grow by 25-30 per cent in 2010-11.” For SBI, Baliga says that they were expecting its tax outgo to be flat. Experts say that the tax numbers could also be a reflection of higher loan provisioning (for SBI and ICICI Bank) being made for the June quarter. Going ahead though, with demand picking up, the sector should do well with profit margins remaining stable.
Capital goods, engineering
Thanks to strong order books and improving execution of projects, L&T and BHEL saw their advance tax outgo rise at a good pace. While markets were not surprised, they expect the companies to do well in the current year as execution gains momentum. However, there could be some short-term pains for power T&D equipment makers, as the pace of execution and order flow has been slow.
Cement
Consequent to the margin pressure being faced by the industry, the decline in tax outgo for Ambuja (7 per cent), ACC (16.7 per cent) and UltraTech (51 per cent) did not surprise. While cement despatch volumes for the industry have been decent, higher input prices coupled with lower realisations have led to the margin pressure. For Grasim though, analysts say that the higher numbers could be a reflection of its VSF business, which is doing well, as well as capital gains.
Oil & gas, petrochem
Higher volume in the gas business is seen among key reasons for Reliance Industries’ (RIL) higher tax outgo. However, says Sonthalia, “the higher tax outgo could be due to other income.” While the jump in HPCL’s numbers was a big surprise given the uncertain environment, GAIL’s higher numbers could be due to increase in blended tariffs and volumes, says Sonthalia.
Pharma
There were no surprises in the advance tax numbers for the healthcare segment which was expected to do well; healthcare index too is reflecting this and is trading close to its all-time highs. Lupin saw a 37 per cent jump in tax outgo led by good contribution from both domestic and international businesses. Ranbaxy also saw a 17 per cent jump in its tax outgo and analysts expect a 20 per cent growth in its 2010-11 profits. Analysts believe that while revenues of generic majors (Dr Reddy’s, Ranbaxy, Cipla) will see a growth from the domestic segment, they are more bullish on the CRAMS players (Nicholas, Jubilant, Dishman, Divi’s) which had a forgettable 2009-10 as MNCs were cutting down on inventories.
Others
Bharti Airtel’s 79 per cent jump in tax outgo has come as a surprise to analysts considering the challenging operating environment. Analysts say that the increase in minimum alternative tax to about 18 per cent (Bharti's effective tax rate is 13 per cent currently) could be responsible for the higher tax outgo. Other listed players like RCom’s (effective tax rate is only 8.5 per cent) and Idea (12.5 per cent) could see their tax outgo increase.
| THE TOP 20 | ||
| In Rs crore | June'10 | % chg |
| RIL | 653 | 108.00 |
| NTPC | 280 | 1.40 |
| Infosys | 275 | 19.60 |
| SBI | 865 | -19.00 |
| TCS | 128 | 141.50 |
| BHEL | 400 | 25.00 |
| L&T | 130 | 18.20 |
| Bharti Airtel | 179 | 79.00 |
| ICICI Bank | 350 | — |
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