Early-bird Q4 results do not inspire much confidence

The 17.6% revenue growth of 135 firms drops to just 7.9% if two prominent companies are removed

At first glance, the revenue growth of 17.6 per cent, year-on-year, that the 135 early-bird companies have reported for the January-March quarter, looks good. But if two of these companies — the country’s largest company in terms of revenue and the most efficient metal producer — are removed, the growth drops to just 7.9 per cent. Net profit growth, year-on-year, was an insipid 8.6 per cent with a large chunk of it coming from a handful of companies. If three of the top five profit earners during the quarter — Reliance Industries, HDFC Bank and Hindustan Zinc — are removed, this growth falls to a mere 3.2 per cent.

 
Reliance Industries’ top line grew on account of higher petroleum product prices and new capacities coming on-stream. Hindustan Zinc saw a boost in revenue as average zinc and lead prices gained over 60 per cent and 30 per cent, respectively, during the quarter along with a 66 per cent increase in production. While HDFC Bank and Maruti Suzuki reported reasonably good numbers, both were a tad below their long-term averages. The financial sector was able to report robust numbers on the back of retail lending, lower interest costs and gains in treasury income as bonds rallied. As a result, most banks and non-banking financial services companies were able to grow both revenue and net profit.

 
At 4.3 per cent, the operating profit growth, excluding other income, for all companies that have declared results was the slowest in at least 12 quarters. Operating margins were the lowest in nine quarters; a result of higher raw material costs, which went up 4.8 percentage points of revenue, year-on-year, and exerted pressure on profits. On net profit, companies were able to do a little better with the help of other income and lower tax rates. Data of the companies focussed on domestic sales suggest that the effects of demonetisation lingered on during the fourth quarter of 2016-17, hampering demand. If information technology firms, metal producers, financial services companies and Reliance Industries are removed, the rest of the companies selling primarily at home have seen revenue and net profit grow at 6.4 per cent and 5.3 per cent, respectively.

 
Although the sample of 135 companies is not sufficient to predict the overall trend of corporate performance during the quarter, what is clear from the early bird numbers is that one of corporate India’s key engines — the software services sector — is spluttering as growth slows down. Revenue growth of 16 information technology firms slowed down to under 4 per cent after two consecutive quarters of single-digit growth. Net profit growth in the January-March quarter was only 0.6 per cent. Two other sectors, pharmaceuticals and telecommunications, which have been historically important, are unlikely to be of much help to India Inc’s financials during the quarter. The pharmaceuticals industry has been reeling from quality checks by the US Food and Drug Administration, which have resulted in some units being unable to export. And telecom is going through a tariff war after Reliance Jio’s launch. So far, Reliance Industries, metals and financial services have accounted for the growth in the fourth quarter of 2016-17, while the performance of manufacturing companies has been tepid. Early trends point towards a longer waiting period before India witnesses a broad-based economic recovery.