For India Inc, it is a long road to turn the corner AS rising debt, thrifty consumers squeeze profits

Written by fe Bureau | Mumbai | Updated: May 5 2014, 15:07pm hrs
India IncCostly inputs, rising debt & thrifty consumers squeeze profits
Tata Consultancy Services (TCS) may be confident FY15 will be a good year for the firm, but going by recent numbers, most of India Inc is struggling to push the top line and defend bottom lines in an economy debilitated by the near lack of fresh investment and fewer job opportunities.

Earnings for Q4FY14 are just a grim reminder of how much trouble the industry is in. While an Idea Cellular beat the Street with a jump in consolidated revenues of 16.2% y-o-y, Reliance Communications profits fell 48% y-o-y.

Hindustan Unilevers volumes grew just 3% y-o-y an 18-quarter low and while the performance is creditable given the challenging environment, its only modest otherwise.

Maruti Suzuki reported a weak set of numbers, missing the Streets estimates Ebitda fell 8% sequentially. Jindal Steel& Powers net profits crashed 47% y-o-y on the back of lower steel production and smaller tariff realisations.

Like many other corporates, the firms net debt has risen sharply from Rs 24,400 crore in March 2013 to Rs 35,300 crore currently. With additional capex, it could rise to Rs 39,000 crore in a year, which analysts point out is discomforting. JSW Energy too fared poorly, reporting net sales that were lower 11% y-o-y, causing profits to dip 46% y-o-y.

Despite a 15% y-o-y increase in top line, the net profit for a clutch of 226 companies (excluding banking and financials), has grown by just 14% y-o-y. While thats partly because raw material costs have risen by 50 basis points as a share of sales, there isnt much of a boost from other income as there has been in previous quarters. Indeed, if one excludes software heavyweights from the sample, the growth in bottom line would have been in low single digits.

BHELs provisional results had shown there were no signs of any pick-up in the capex cycle; the engineering firms order book, at the end of March, 2014, remained stagnant at Rs 1 lakh crore, although inflows picked up somewhat in Q4FY14. Siemens too reported poor numbers with a drop in revenues of 8.4% y-o-y, widely missing estimates. Orders dropped 4% y-o-y leaving the backlog flat over the December quarter and the management indicated that given the closure for large orders was being delayed, it didnt see its domestic operations picking up momentum.

With consumers watching their wallets, FMCG firms are cutting costs where they can Marico grew its consolidated operating profit by 27% only because it reined in employee expenses, ad spends and other expenses even as its stand-alone gross margins dropped 530 basis points. How tight-fisted consumers have become can be in seen in the plight of retailers: same store sales at Shoppers Stop, for stores older than five years, was a miserable 3.8% y-o-y and both customer entries and the conversion ratio actually fell during the quarter.

Clearly, companies are hesitant to expand their businesses; ICICI Bank, for instance, grew its loan book at 17% y-o-y, but much of the increase came in from retail loans up 23% y-o-y. In a clear indication of the stress in the infrastructure sector, IDFC reported a large restructured loan book of 4.6% of gross loans or Rs 2,700 crore in Q4FY14. The high level of provisions that the lender needed to make on these loans and non-performing assets, dragged down its earnings net profits fell 52% y-o-y. Cement major ACCs profits fell 13% y-o-y, with sales down 2% y-o-y as activity in the construction sector stays lacklustre. With industry not recovering, it may be a while for banks before the NPA (non-performing asset cycle peaks. Fresh restructuring at Axis Bank has been high at 2.1%. Between April 2013 and February 2014, the capital goods segment within the IIP has contracted 2.6%.