Earnings season may have started with a bang but has ended with a whimper; with a few exceptions, corporate India is struggling to grow as demand falls off and key inputs remain scarce. Not only has it become harder to sell consumer products or win orders for capital goods in a decelerating economy, the output of power has been jeopardised by the shortage of gas. Nowhere was the stress more visible than in Tata Motors; the CV maker reported a loss of R458 crore for the home market as both volumes and realisations dropped 10% y-o-y. With manufacturers in big trouble, raw material suppliers and vendors were in worse shape; Tata Steel wasnt able to sell enough metal, nor was it able to price it profitably enough and so ended the December quarter with a loss of R458 crore for the home market. Clearly, sectors like construction and automobiles arent seeing growth momentum because state-owned steel-maker SAILs ebitda dropped 28% y-o-y on the back of falling realisations while auto parts player Bharat Forge saw revenues plummet both in the local and overseas markets. The numbers, for the three months to December 2012, are probably the worst in a long time: for a sample of 2,392 companies (excluding banks, financials and oil firms) net sales rose a paltry just 8% y-o-y. If the bottomline has grown in double digits10% y-o-yits thanks to lower costs and some help from other income. But things are worse than they were in September when net profits rose 16.4% y-o-y; the IIP data for December showed mining contracted 4% while manufacturing contracted for the second month in a row.
Without doubt, a large part of the slowdown is due to either policy paralysis or regulatory issues. The continuing ban on iron ore mining in both Goa and Karnataka, for instance, hurt Sesa Goas operationsthe company produced no ore during the quarter, resulting in an ebitda loss of R100 crore. Power plants are running short of gasGVK, for instance, reported a loss of R57 crore with revenues falling 13% y-o-y to R648 crore. For their part, companies have been too ambitious, leveraging themselves needlessly; GVKs debt now stands at R15,000 crore. At IVRCL, which reported a loss of R68 crore in the December quarter, interest costs in the last six months have been higher than the PBDIT. GMR, which posted a loss of R220 crore in the December quarter and whose revenues this year are estimated at R8,400 crore, has piled up a debt of R37,700 crore. With infrastructure players heavily in debt and key resources like coal and gas in short supply, the question is how much capital expenditure is likely to be made in the next couple of years. Its becoming increasingly evident that the economy cant regain its earlier momentum before meaningful amounts are spent on new projects. As of now, orderbooks are small and shrinking; Bhels order backlog contracted sequentially to R1.1 lakh crore at the end of December 2012 from R1.22 lakh crore at the end of September while order inflows at Siemens fell 31% y-o-y in the three months to December. Tata Motors pruning of production targets at its Jamshedpur plant suggests the economy isnt troughing out just yet. And with the global recovery at best muted, neither is corporate Indias bottom line.