Slowing revenue growth, high costs of raw materials, inventory write-down, foreign currency fluctuations, provisions made to resolve legal issues and high costs of borrowing have put 1,111 companies in the red, with aggregate net loss of Rs 18,661 crore in the third quarter. These companies had aggregate net profit of Rs 1,244 crore in the same quarter of the previous financial year.
The loss on account of mark-to-market (MTM, revaluing assets to reflect current value) provisions was Rs 3,614 crore, as against a net MTM gain of Rs 68 crore in the same quarter last year. The Rs 2,648 crore provision made by Ranbaxy to resolve the ban on facilities in Dewas and Paonta Sahib (for export to the US) and Essar Oil’s provision of Rs 4,015 crore towards reversal of the profit resulting from deferment of sales taxes that it had booked in its accounts till date, also went against the loss-making firms.
The aggregate net sales of loss-making companies studied here rose 15.2 per cent and total operating expenditure zoomed 29 per cent. The raw material costs were 650 basis points higher over growth in sales. Interest cost, more than 50 per cent of aggregate net loss, rose 46 per cent. No wonder the operating margin was down 950 basis points, to 3.4 per cent.
Tata Steel posted a net loss after two years, mostly on account of higher raw-material costs and inventory write-down of $143 million. The company also suffered a setback as Tata Steel Europe margins turned negative. Suzlon Energy, despite margin expansion by 180 bps, posted a net loss as the company was hurt by higher interest, depreciation and taxation. Cost overruns of Rs 277 crore dragged Voltas into the red, while a Rs 155.5 crore forex loss put Jubilant Life Sciences in the red.
Among others, Mahanagar Telephone Nigam Ltd continued to be in the red, as growth remained static for several quarters, while salaries ate into all revenues. Kingfisher Airlines entered its ninth loss-making year, as the company could not find a way out from a burgeoning interest burden and high cost of fuel. Adani Power suffered net loss of Rs 358 crore due to substantial rise in fuel cost, higher interest and depreciation costs, together with Rs 132 crore of forex losses.
Analysts are expecting the sector leaders to post a turnaround in the fourth quarter and strong performance in financial year 2013. For example, Tata Steel may see margin expansion in the fourth quarter due to increase in steel prices in January and cost reduction on account of lower raw material prices. Besides, steel price recovery would lead to low risk of further inventory write-downs. European demand has picked up, with prices inching up.
Analysts expect Essar Oil to suffer a fresh setback in the coming quarters, if one assumes its review petition in the Supreme Court does not obtain a reversal of judgment. It will have to repay the cumulative tax deferral benefit availed, so far amounting to Rs 6,300 crore till December 31, to the Gujarat government. The management has already written down Rs 4,015 crore, but has not yet accounted for accrued interest worth Rs 1,750 crore.
Ranbaxy’s management says it expects $2.2 billion of sales for 2012, excluding any new one-off opportunities, but will include the generic Lipitor upside. It has also predicted gradual improvement in operating margins every year for the next three to four years, led by resolution of the US drug regulator issues, increased focus on emerging markets, furthering the synergies with Daiichi and other cost containment measures.
