India Incs profits wilt even as debt keeps piling up

Written by fe Bureau | New Delhi | Updated: May 20 2013, 16:59pm hrs
With the economy in slow mode and purchasing power falling across sectors, India Inc is barely growing. Makers of both consumption and capital goods are finding it hard to push through sales while infrastructure companies struggle for want of key inputs. While profits shrink, debt is piling up fast enough to make bankers edgy. Jaiprakash Associates standalone net debt is R22,000 crore while its consolidated net debt is R57,000 crore; Adani Power, which posted the highest ever quarterly loss of R534 crore in the March quarter, has a consolidated net debt of R36,200 crore; Reliance Communications, which has now reported a flat Ebitda for 13 straight quarters, has a net debt of around R38,000 crore; and GVK Infra, which reported a loss of R170 crore and could bleed for two more years, has borrowings of R17,000 crore. Reliance Power, which earned a profit of R1,012 crore in FY13, has a total debt of close to R30,000 crore. Essar Oil, which posted an Ebitda of R3,042 crore and a net loss of R1,069 crore in FY13, has net borrowings of just under R20,000 crore.

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Business across sectors is dull and commentary across boardrooms is cautious. With recovery nowhere in sight in global markets like Europe, firms like Tata Steel have been compelled to take large impairment charges. How sluggish the core sector is can be seen from the the profits of Ashok Leyland, which collapsed by over 90% year-on-year in the fourth quarter as domestic truck volumes fell 23% y-o-y, driving down net sales by 14%. Analysts say the market is expected to recover only towards the second half of FY14.

Analysts at Edelweiss note that Reliance Infrastructures order book has shrunk to a third in the past two years, pointing out that the firms net profit of Rs 600 crore in the fourth quarter was boosted by tax writebacks of Rs 300 crore. At Jaiprakash Associates, Ebitda fell 14% y-o-y with margins coming off across most segments the construction segment saw margins contract 500 basis points y-o-y.

In the consumption space, discretionary spends are tapering off. Asian Paints, for instance, had a dull quarter, missing estimates by a wide margin; consolidated net profit fell 3% y-o-y as sales rose just 7% y-o-y and margins contracted 100 basis points. Subdued demand saw Bajaj Autos domestic motorcycle volumes fall during the quarter, as a result of which total sales rose only 3% y-o-y and the driving down Ebitda by 4.2%. The staples pack didnt fare too well either. Nestle disappointed with net domestic sales up 7.7% y-o-y, led more by realisations rather than volumes.

For a sample of 851 companies (excluding banks and financials), net sales in the three months to March have grown under 5% y-o-y, way below the 10.7% y-o-y seen in the December 2012 quarter and 14% y-o-y reported in the September 2012 quarter. With prices of commodities softening, however, expenditure has been reined in up 4.3% y-o-y allowing operating profit margins (OPM) to expand by 37 basis points y-o-y. If net profits are up 7% y-o-y, its because other income up 14% y-o-y has given them a push.