Smooth sailing

India Inc. has beaten the slowdown blues, and can look forward to more of the same.  

K. Gopalakrishnan

The start of the results season has been good for India Inc. The 778 companies that had reported results for the September 2007 quarter till October 26 have recorded a 28 per cent rise in net profit to Rs 31,683 crore, compared to Rs 24,747 crore in the corresponding period of the previous year. During this same period, their revenues surged 22 per cent to Rs 2,16,795 crore from Rs 1,77,266 crore.

The rise in net profit may have been helped by the 42 per cent rise in other income to Rs 10,314.32 crore (Rs 7,265.3 crore). Despite that, the results are impressive as operating profit margins for the quarter have surged over 300 basis points to 32.5 per cent against 29.3 per cent. The rise in other income has been mostly on account of foreign exchange gains. In fact, even after excluding other income from profit before tax, the companies have witnessed a growth of 26.4 per cent on this parameter.

A bird’s eye view of India Inc

Top and bottom lines have registered a healthy growth during the July-Sept. 2007 quarter.  COMPANIES (778)  SEPT. ’07  Y-O-Y (%) Q-O-Q (%)    Net sales  2,16,795  22 10  Other income   10,314  42  -11  Expenditure  1,54,842  19  11  PBDIT   76,329  34   5  Interest  27,104   47  0  PBDT  49,225   28  7  Depreciation  5,902  17  7  PBT  41,660   30  8  Tax   9,977  36  8  PAT  31,683  28  8 *Figures in Rs crore Source: CMIE

Prateek Agarwal, Head (Equity), Bharti AXA Investment Managers, says: “Across the board, the results are better than expected. It’s not surprising, as the economy is growing by 9 per cent, and companies are expected to register a 25-30 per cent growth on the back of increased consumer spending in India.” Barring cement and two-wheeler companies, the others have turned in impressive performances. He estimates that the 2008-09 Sensex EPS of Rs 1,000 (projected by most of the brokerage houses) will have to be revised to Rs 1,025-1,030.

Gagan Banga, CEO, Indiabulls Credit Services, agrees with this assessment. “Given the negative scenario on interest rates, high crude oil prices and the rising rupee, the corporate performance has been good. The party is expected to continue and I am not worried for the next 24 months. Thereafter, the shortage of capacity will impact the profitability of companies.” India Inc. is enjoying the benefits of the investments it made on capacity expansion in the 2000-04 period, he adds.

THE CRYSTAL BALL

The sectors that are expected to maintain their growth trajectory and those that aren’t.

ON THE RISE  IN DECLINE Telecom  Textile  Capital goods & engg.  Oil  Cement  Pharma  Banks  IT  Power  Automobiles  Construction

Experts feel the telecom, capital goods, construction, petrochemicals, metals & commodities, banking & financial services and power sectors will maintain their momentum in the foreseeable future, while sectors like textiles, oil, pharmaceutical, technology and automobiles will underperform. Says Banga: “The rupee appreciation is the key element that will impact the margins of these sectors and companies will have to hedge their positions. However, if interest rates start declining, automobile companies will be among the first to bounce back.”

Meanwhile, among the Sensex companies, Reliance Industries has registered a 42 per cent rise in net profit to Rs 3,837 crore, on a 13 per cent rise in revenue to Rs 32,043 crore. Construction and engineering behemoth L&T has reported a 47 per cent rise in net sales to Rs 5,499.94 crore on a 147 per cent jump in net profits to Rs 586.31 crore. On the other hand, automobile companies Ashok Leyland and TVS Motors disappointed investors. TVS reported a 24 per cent drop in net sales following a 44 per cent decline in motorcycle sales and higher interest costs, depreciation and lower other income ate into the profits of Ashok Leyland, registered a 16 per cent fall in net profit to Rs 80.34 crore (Rs 95.36 crore).