India Inc’s Q1 profit grows in double digits

MUMBAI: Lower raw material and power costs, mainly because of declining commodity prices helped India Inc report a double digit growth in net profits during the April-June quarter (Q1FY16), but the revival in demand is yet to happen. An analysis of 298 companies excluding financial, oil companies and Vedanta, showed that while net profit for Q1FY16 rose 10 per cent on a yearly basis to Rs 36,585 crore, the growth in revenues was at a tepid 5.7 per cent to Rs 3.23 lakh crore. In contrast, a few quarters ago, it was the other income which kept a large number of companies in the black.

"Lower raw material, power and fuel costs supported this profit growth and a 46 basis points (100 basis points = 1 percentage point) improvement in EBIDTA margins. A broad-based recovery in corporate earnings is still elusive," said Prasad Koparkar, senior director, Crisil Research. "We expect aggregate financial aggregate performance (for the quarter) to deteriorate as more laggards declare their results towards the end of earnings season," he said.

The companies which have announced their results so far account for 54 per cent of NSE's market capitalization for these sectors.

The analysis by Crisil Research showed that telecom, media and automobiles were better performers, both in terms of revenues as well as operating profits growth while investment-linked sectors like cement, capital goods, and construction, power generation and steel were the worst performers. For two-wheeler companies, exports was the main growth driver while domestic demand grew by just 3 per cent on a yearly basis. However, in the passenger vehicle segment, Maruti witnessed a 14 per cent rise in volumes, leading to an 18 per cent rise in revenues.

The analysis also showed that investment-linked sectors continued to disappoint, reflecting a slack in investment activity on the ground despite a slew of policy announcements. In the steel sector, owing to a sharp fall in prices, weak demand environment and higher imports, the aggregate revenues of steel and steel pipe companies contracted 2.3 per cent during Q1FY16. Weak operating performance and higher finance cost associated with the commissioning of new plants of various steel players led to a 412 basis points yearly decline in net margins of the industry.

In the banking sector, "the performance of public sector banks continues to deteriorate with advances growing in single digits, gross non-performing assets (GNPAs) increasing by 148 basis points, net interest margins declining by 16 basis points and net profits plunging by 38 per cent," Koparkar said. "Private sector banks, on the other hand, have shown relatively strong performance. Growth in advances at 22.9 per cent is more than three times their public sector peers, while GNPAs have increased by just 15 basis points and remain healthy at 2 per cent. Net profits grew by a modest 11 per cent due to a 90 per cent increase in provisioning." he said.