For the first time in 10 years, operating profits for the Sensex set of companies could see a slight fall in the December 2008 quarter.
The Sensex may have rallied smartly to trade above the 10,000 mark, but the 30 companies which make up the index could see a slight drop in ebitda (earnings before interest, tax and deprecia-tion) in the December 2008 quarter for the first time in 10 years, according to Bank of America Merrill Lynch. The story’s not too different for the rest of India Inc: for a universe of 128 companies, Motilal Oswal expects a fall in net profits of 8 per cent on an increase in revenues of 11 per cent.
| INDIA INC: PROFITS CRIMPED | ||||
| YoY rise / fall ( %) | Q3-FY08 | Q4-FY08 | Q1-FY09 | Q2-FY09 |
| Net sales | 16.78 | 24.96 | 35.31 | 35.93 |
| Operating profit | 17.09 | 12.63 | 13.11 | -13.29 |
| OPM (%) | 18.51 | 17.04 | 16.02 | 12.77 |
| Net profit | 14.33 | 8.56 | 5.34 | -35.04 |
| Sample: 2429 cos (excluding banks & NBFCs) Source : BSRB | ||||
That the top line growth for many companies could stay flat or rise marginally is not really surprising given that the economy has clearly lost momentum over the past few months —the drop in sales volumes for commercial vehicles and bikes is clear evidence. It’s not just the home market — exports are believed to have fallen again in December.
Also, cost pressures haven’t fully abated — the benefits of lower input prices will probably seep through only in the March 2009 quarter. And with money still dear, spends on interest remain high. Bank of America estimates that revenues for the Sensex set will rise 5 per cent while net profits should be up by just about 2 per cent driven partly by gains from bonds for banks and lower taxes. The earnings per share (eps) though could slip by about a per cent.
The Street is prepared for a poor crop of results but there could be some nasty surprises in the form of forex losses. Nine out of the 30 Sensex firms are likely to see a fall in net profits. Likely candidates, from a larger universe, are the entire auto pack with the exception of Hero Honda, the real estate lot, pharma major Ranbaxy and metals heavyweights Hindalco, Tata Steel and JSW Steel.
Very little is expected from the oil marketers too where weaker refining margins will drive down numbers. Gains from bonds will boost the bottom lines of most banks and with the exception of ICICI Bank, they should post reasonably good results. FMCG firms will see some smart sales growth — they could be up by as much as 20 per cent— and if the growth in profits isn’t as high it would only be because of a lower increase in other income.