An examination of the results of 417 companies (excluding those in the financial sector) that have declared their results for the third quarter (Q3) of the current financial year suggests that the slowdown apparent in the second quarter became even more pronounced between October and December 2011. The impact of inflation on raw material inputs, of high interest costs and of rising crude and gas prices is clear. Compared to the corresponding quarter of 2010-11, profit after tax (PAT) has fallen marginally, by 1.7 per cent, for this whole sample. Matters would have been worse except for the weak rupee, which had a positive impact on the sales and bottom-lines of the information technology industry. Across the board, sales growth has been good, with a 25 per cent rise over the corresponding period in 2010-11. However, interest costs have risen 40 per cent and ordinary expenses are up 31 per cent. Profit margins show significant contraction for most industries. The PAT margin for the entire sample (PAT as a percentage of sales) is down to 9.4 per cent, versus 12 per cent in Q3, 2010-11. The operating margin — PBDIT (Profits before depreciation, interest and tax) as a percentage of sales — has also dropped, to 15.7 per cent from 19.5 per cent in Q3, 2010-11. That confirms that ordinary operating expenses have risen considerably, along with interest costs.
Key sectors such as automobiles, auto ancillaries, and castings and forging, appear to be in the recessive phase of their respective cycles, and these have all registered lower profits. Key core sectors such as power generation and distribution, steel, mining and minerals, refineries, and capital goods (both electrical and non-electrical) have all seen diminished profits as well. So has realty, which has also seen lower sales, which is unusual for most sectors in this quarter. One saving grace has been the performance of the software sector. Boosted by the weak rupee, the 39 software companies that have so far declared results have registered 30 per cent sales growth, and 21 per cent rise in PAT. Surprisingly, a 16-company sample of the export-oriented pharma sector has registered a 2 per cent drop in profits. Cement appears to be undergoing a recovery with a spectacular 111 per cent rise in profits and 32 per cent sales growth. The fast-moving consumer goods sector has chugged along, with 24 per cent sales growth and 63 per cent PAT growth, in line with its reputation as a good defensive play. However, consumer durables, media and entertainment businesses, and the hospitality industry have all declared lower profits for this quarter.
The impact of rising petroleum prices as well as the growing customer base for gas, with its partially decontrolled prices, is evident — though many of the major public sector undertakings in this space have not yet declared results. Refining has seen a 40 per cent increase in sales, a 51 per cent increase in expenses, and a 16 per cent drop in net profits. Refining margins have obviously fallen. Gas distribution has seen a 47 per cent increase in sales and 21 per cent rise in profits, implying that distributors are thus far managing to pass on the impact of higher prices including LNG imports.
