Indian rupee aids top line, but India Inc not yet on the mend

Written by fe Bureau | New Delhi | Updated: Feb 17 2014, 11:06am hrs
Indian rupeeResults of a handful of companies drive up profits in Q3 FY14. Reuters
The 20% year-on-year jump in aggregate net profits in the three months to December 2013 would suggest India Inc may be out of the woods. But read that with BHELs results a 41% y-o-y fall in net profit and the order book at Rs 1 lakh crore, the smallest in 22 quarters and it would be hard to argue that corporate India is anywhere close to a recovery.

If indeed Inc Inc was coming out of the trough, construction revenues at Reliance Infrastructure wouldnt have collapsed 56% y-o-y and Adani Power wouldnt have reported a loss of Rs 510 crore. Clearly, the core of the economy remains in trouble; volumes at Coal India fell 3% y-o-y while operating profits at Ambuja Cement crashed 33% y-o-y thanks to poor realisations, a sign of poor offtake by the construction sector.

Indeed, while the weaker rupee has helped shore up the top line up 10.5% y-o-y much of the profits have been generated because expenditure has been reined in raw materials to sales fell 31 basis points y-o-y, helping operating profit margins expand 70 basis points y-o-y to 15.64%.

If Tata Consultancy Services (TCS) and Tata Motors are excluded from the sample of 2,441 companies (excluding banks, financials and oil marketing companies), the increase in profits would be a more sobering 14% y-o-y.

The bad news is that depreciation is up just 11% y-o-y, the slowest in the last four quarters and an indication of how slowly companies are adding capacity. The fact is that business in the home market remains dull Tata Motors reported an Ebitda loss for its domestic operations while lower than expected realisations at Tata Steel and a forex loss led to an Ebitda miss. And while drug majors like Sun Pharma profit up 74% y-o-y and Dr Reddys profit up 64% y-o-y have fared exceeding well, the fact is that the Suns bottom line was helped by its subsidiary Taro and the Dr Reddys benefited from its launches in the US market.

Smaller companies continue to reel under the impact of a slowing domestic economy. Net profit at Exide crashed 26% y-o-y on the back of an 11% drop in revenues with a sharp decline in demand for inverter batteries, pushing the firms EPS to the lowest in the last eight quarters.

With retail inflation ruling at 10% levels, discretionary spends are on a leash as seen in the 12% y-o-y fall in volumes and the 5.2% y-o-y drop in Bajaj Autos sales. Given that average realisations per unit for the motorcycle player were smaller in the third quarter than in the second quarter, pricing power seems to be elusive. And growth remains subdued at Axis Bank corporate loans grew just 3% y-o-y while ICICI Bank reported a 6% y-o-y rise in corporate loans advances, lower than the 11% y-o-y seen in the September quarter.