Steady demand amid price rise squeezes corp profits
India Inc is reeling under the pressure of rising prices, if results of more than 400 cos in the June 2008 quarter are anything to go by. Managing global workforce
By Karan Sehgal, ET Bureau |
MUMBAI: India Inc is reeling under the pressure of rising prices, if the results of more than 400 companies in the June 2008 quarter are anything to go by. Though revenue growth in the first quarter of FY09 was much higher than the previous quarters, the growth in aggregate profit came down to 17% year-on-year (y-o-y) from a high of 48% in the December 2007 quarter.
The impact has been so dramatic that companies in sectors like banking witnessed almost nil growth in bottomlines in the June 2008 quarter, while just a few months ago, they were registering profit growth as high as 40%. ICICI Bank saw its profits decline 6% due to stagnant business and treasury losses, while SBI reported a 15% increase in its profit due to high growth in non-fund based other income.
Though SBI beat analysts��� forecasts, growth has slowed down considerably compared to last year. It must be noted that the June quarter witnessed an overall credit growth of around 20%. The bottomlines of banks will be severely impacted if the credit growth slows down in coming quarters.
Capital goods stocks were the darlings of the investors during last fiscal, but no longer. Net profit grew by a mere 8.6% in June 2008 quarter compared to more than 50% in the corresponding period last year. Bharat Heavy Electricals (Bhel) was perhaps the only major player, which recorded a much higher revenue and profit growth on the back of a strong order book.
There is no respite from high input prices for the auto sector either. Profit growth, which stood at more than 20% in the September 2007 quarter, has come down dramatically. In fact, the aggregate net profit of auto companies has registered a dip in the June quarter so far. This is also true of one of the largest players in the industry, Maruti Suzuki. Maruti���s net profit fell by 7% in June ���08 quarter despite higher sales.
| | Also read |
| �� | |
| �� | |
| �� | |
| �� |
The cement companies were another casualty of rising prices and government intervention. The revenue growth came down considerably during the June ���08 quarter indicating a general slowdown. Worse still, the net profit fell y-o-y due to rising raw material prices. ACC witnessed more than 20% fall in net profits, signalling a bleak outlook for cement manufacturers.
The results were mixed for the IT sector. The biggies like Infosys, Wipro & TCS reported higher revenue growth in the topline in the first quarter of FY09 than a year ago. This was primarily because rupee depreciated versus dollar in the June quarter while it appreciated against dollar in June ���07 quarter. The profit growth of Wipro and TCS came under pressure in the quarter. The outlook is positive only for Infosys provided the rupee remains weak and the billing rate remains stable during the rest of the year.
Defensive sectors like FMCG and pharmaceuticals are doing far better. The revenues of FMCG majors like HUL and Colgate Palmolive grew at a faster rate in June ���08 quarter than the last fiscal. In fact, profits at both these biggies registered higher growth rates than in the March ���08 quarter.
This shows that the leaders in FMCG industry are able to pass on the impact of rising raw material prices to consumers. Similarly, pharma majors like Cipla and Dr Reddy���s have also reported better growth rates in this quarter than the previous one. The silver lining came in the form of telecom companies which were largely untouched. The aggregate sales and net profit of the telecom companies reported a growth of 50% y-o-y in the first quarter of FY09. Such growth rates are in line with the rates in the preceding quarters.
This trend was reflected in the results of Bharti Airtel, the biggest telecom services provider. Bharti���s net profit grew at a higher rate than estimated by analysts and also higher as compared to previous few quarters.
The worst is yet to come for sectors like banking, capital goods, auto and cement if the inflation does not abate. However, even in tough times as these, telecom companies have done exceedingly well. This shows that the telecom sector is a long-term growth story unaffected and unperturbed by the fluctuations in the form of rising interest rates.
Defensive sectors like FMCG and pharmaceuticals are doing far better. The revenues of FMCG majors like HUL and Colgate Palmolive grew at a faster rate in June ���08 quarter than the last fiscal. In fact, profits at both these biggies registered higher growth rates than in the March ���08 quarter.
This shows that the leaders in FMCG industry are able to pass on the impact of rising raw material prices to consumers. Similarly, pharma majors like Cipla and Dr Reddy���s have also reported better growth rates in this quarter than the previous one. The silver lining came in the form of telecom companies which were largely untouched. The aggregate sales and net profit of the telecom companies reported a growth of 50% y-o-y in the first quarter of FY09. Such growth rates are in line with the rates in the preceding quarters.
This trend was reflected in the results of Bharti Airtel, the biggest telecom services provider. Bharti���s net profit grew at a higher rate than estimated by analysts and also higher as compared to previous few quarters.
The worst is yet to come for sectors like banking, capital goods, auto and cement if the inflation does not abate. However, even in tough times as these, telecom companies have done exceedingly well. This shows that the telecom sector is a long-term growth story unaffected and unperturbed by the fluctuations in the form of rising interest rates.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
