While stock markets may be trading at all time highs and are inching towards higher values backed by domestic and foreign institutional fund flows and strong growth projections for India’s GDP by both the World Bank and the International Monetary Fund (IMF), the activity on ground has yet to pick up and reflect in revenue and profit growth for the India Inc.
The analysis of results announced by 70 companies (excluding banks and financial services firms) that announced their results till Thursday and that are part of the BSE 500 list of companies shows that the companies have not yet started showing revenue growth and profits remain under stress even as there has been a decline in input cost for the companies.
The list of 70 companies including the likes of Reliance Industries (RIL), TCS, Infosys, Wipro, ITC, Hindustan Unilever, Ultratech Cement and Bajaj Auto among others witnessed a marginal rise in their net profit by 0.5 per cent and their aggregate revenues declined by 6.8 per cent for the quarter ended December 2014 over the same period last year. The dip in revenue growth was primarily on account of a sharp decline in net sales of Reliance Industries by 20.8 per cent led by softening in the global crude oil prices. Even the input costs for the list of 70 companies came down by 8.5 per cent following a dip in the global commodity prices including that of crude oil.
However, if RIL (that accounts for 43 per cent of the net sale and 48 per cent of the expenditure of the list of companies) is excluded from the list within the study then the 69 companies show an aggregate growth of 7.9 per cent in net sale and 1.7 per cent rise in net profit.
The quarter remained weak in terms of revenue growth for companies across various sectors. While it fell for oil companies on account of softening crude oil prices, the FMCG companies too witnessed a weak revenue growth on account of dip in volume growth during the quarter.
The leading IT majors — TCS, Infosys and Wipro saw an aggregate growth of 10.4 per cent in the revenues as the rupee depreciated against the dollar during the quarter. The aggregate net profit of the three IT majors however rose by only 5.4 per cent during the quarter over that in the same period last year.
Financials beat the trend
While the aggregate performance of all companies (ex-financials) that announced their results till Thursday, remained dismal, banks and financial institutions have bucked the trend. The list of 20 banks and FIs that are part of BSE 500 list of companies and that have announced their result saw their aggregate profit for the quarter grow at an impressive 17 per cent for the quarter ended December 2014.
Banks saw strong growth in their treasury incomes. “For Kotak Mahindra Bank, the other income grew 65 per cent to Rs 494 crore higher than our expectation led by strong treasury gains of Rs 118 crore as against Rs 85 crore in Q2 FY15,” said a report prepared by ICICIdirect.com.
As the interest rates are set to go down with RBI already going for a 25 basis points rate cut in January 2015, the economy is expected to witness a pick-up in credit growth and thereby more lending by banks that would increase their income and profitability going forward.