The earnings season has ended on a subdued note with more disappointments than surprises. For a sample of 1,909 companies (excluding banks, financials and oil marketing companies), net profits in the March 2013 quarter fell a sharp 16% year-on-year partly due to large one-off hits in some companies such as Tata Steel, which took a large non-cash impairment charge. However, large losses reported by firms like Suzlon indicate how stressed corporate India is; the number of companies that reported a loss during the quarter is close to 350. Tata Motors, for instance, reported a standalone net loss of R312 crore in the fourth quarter against a net profit of R565 crore a year earlier as net revenues fell 32% y-o-y to R11,068 crore.
More than the weak profit numbers, what will weigh on analysts as they rework their earnings estimates is the cautious commentary from most managements. Karl Slym, managing director Tata Motors, has said he doesn’t see any immediate revival in the market. AM Naik, chairman, Larsen & Toubro, has said he doesn’t see an upturn in investments this year.
The relatively small order books at engineering firms indicates that the capex cycle is far from turning. The order backlog at engineering firm BHEL, for instance, was smaller at the end of FY13 than it was a year earlier, corroborating data from Centre for Monitoring Indian Economy that showed new project starts fell 57% y-o-y in the March quarter, the lowest levels seen since June 2005.
While profits shrink, the 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 losses of R534 crore in the fourth 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; while 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.
Net sales for the sample rose at a subdued 5.6% y-o-y compared with