Corporate India is on a recovery path. Going by the corporate earnings during the January-March quarter, it is clear the recovery is becoming broad-based. For a sample of 1,181 companies (excluding Cairn, Vedanta, banks, financials and oil marketing firms) which have declared their results so far, net profit during the quarter rose 41.78% compared to the same period last year. Net sales were up 4.20%.
While this has been made possible with commodity prices remaining subdued – the share of raw material to sales dropped 2.45 percentage points — and interest cost increasing in low single digits, there are other factors which point to the beginning of a broad-based recovery.
This growth in earnings during the quarter has come after six quarters of weakness. Amongst other positives, new residential sales units rose in the quarter ending March after contracting in the last nine quarters (except QE Jun-15). Two-wheeler sales, which is seen as a barometer for rural demand, have started to pick up in the last four months after remaining weak in the preceding 12 months. Even passengers flown and consumer durable production have shown an improving trend during the period.
The beginning of a broad-based recovery is now seen because there’s been a pickup in discretionary consumption — both urban and rural. This is important because though public capex and foreign direct investment flows have continued to remain strong, exports, private investment and consumption growth has been slow. However, over the last three months there are several indicators which show that there has been a pickup in discretionary consumption which has been on a weak trend since mid-2012.
The country’s second largest two-wheeler manufacturer by volume, Bajaj Auto’s margins came in at above estimates at 21.3% on the back of benign commodity prices and favourable currency mix. The company management has projected that overall volumes during the current fiscal will be 4.6 million, which will be up 18% on a year-on-year basis. In the domestic motorcycle market, the company has set an aggressive target of 2.6 million units, which is up 37% y-oy.
Larsen and Toubro (L&T), which is a bellwether for the economy being the largest engineering and construction company, also beat estimates on revenues and net profit, though it failed to deliver on its forecast for order inflows due to weak capital spends by the private sector. company management has guided for revenue growth of 10-12% in FY17 while order inflows growth is seen at 15%. The company also guided for core business margins to rise by 50 bps in FY17.
Tata Steel narrowed its net loss to Rs 3,214 crore. The company has guided for domestic demand growth of 5-6% in FY17. Capex incurred in FY16 was about Rs 11,500 crore and is projected to be below Rs 10,000 crore in FY17, 70% of which will be towards India and South East Asia businesses.