Weak Re, other income drive India Inc Q4 show

Written by fe Bureau | New Delhi | Updated: Jun 2 2014, 05:31am hrs
On the face of it, it would appear that India Inc has turned in a good performance in the quarter ended March, 2014; net profits for a sample of 2,144 companies (excluding banks, financials and OMCs) jumped 30.6% y-o-y. But the numbers hide a lot more than they reveal. To begin with, the top line for the universe grew just 10.5% y-o-y, propped up by a weaker rupee that drove up revenues for exporters. Next, companies have reined in expenses up just 9% y-o-y and theres been an 11% drop in the tax bill. Lastly, an 11% increase in other income has also contributed to the bottom line.

Theres also the base effect a few of the companies that posted losses in Q4FY13 are back in the black. But many continue to reel under the impact of a sluggish economy; the domestic business of Tata Motors is a case in point. The scarcity of key raw materials continues to hurt players in the power sector: GVK Power and Infras losses widened to R235.46 crore in the wake of fuel shortages at its gas-based power plants and high interest costs of R304 crore.

In the case of Adani Power, the reported profit of R909 crore was boosted by a tax credit of R1,382 crore whereas the profit before tax loss was R473 crore.

IT firms and drug companies have done well, benefitting from a falling rupee, but core sector players struggle in a weak demand environment. Steelmaker SAIL turned in a poor performance; the firms Ebitda (earnings before interest, tax and depreciation) of R1,220 crore came in well below the Street estimates, thanks to lower-than-anticipated realisations and higher-than-expected costs.

As companies shied away from making fresh investments and many from even completing ongoing projects, there has been very little capital expenditure in the past year. That has resulted in poor order flows at most capital goods companies.

Ebitda margins at BHEL contracted by 600 basis points y-o-y in Q4FY14 and the engineering firms order book, at the end of March, 2014, remained stagnant at R1 lakh crore, although inflows picked up. Larsen and Toubros orderbook was a lot healthier, however, with the firm having bagged several contracts overseas.

Consumer demand has been weak, hurting makers of both staples and durables; Maruti Suzuki reported a weak set of numbers, missing the Streets estimates Ebitda fell 8% sequentially. 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.

Consumers have cut back on purchases, reflecting 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.

Inefficiencies, too, took a toll on the numbers. At Coal India, the results were well short of expectations; the lack of incremental volumes and flat realisations drove down the Ebitda by 17% y-o-y and net profits by 18% y-o-y to R4,434 crore.

Reliance Communications profits plunged 48% y-o-y. Jindal Steel& Powers net profits crashed 47% y-o-y on the back of lower steel production and smaller tariff realisations.