Editorial: India Inc looks better

Jul 12 2014, 01:28 IST
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SummaryPoor monsoon is the key risk now

After several quarters of disappointing earnings, the June quarter is likely to see India Inc doing better with profits for the Sensex set of companies expected to grow by a robust 18% yoy. Only once in the previous eight quarters has the growth exceeded 10%, so pressured have profits been in the wake of the economic slowdown. The estimate for the June quarter, it should be remembered, comes off a very low base; earnings had contracted in the three months to June 2013. Nevertheless, the good news is that the recovery is expected to be a fairly broad-based one and not driven by exports alone; the top line for the Sensex is tipped to grow a strong 23%, even though the currency has been relatively stable. Indeed, margins are set to expand by almost 100 basis points yoy, not only thanks to the jump in sales but also because a relatively strong rupee would have helped keep material costs in check. Last year was a particularly bad year for corporates with the top line for a sample of 2,144 companies (excluding banks, financials and OMCs) increasing by just 9.4% despite huge gains from currency depreciation and the bottom line too up only 9.5%. However, recent data indicates there is some revival in demand—some segments of the auto sector, which saw the lowest sales in a decade seem to have bounced back. Discretionary spends remained on a leash throughout FY14, as was evident from the poor volumes reported by firms like Bajaj Auto, but hefty discounts appear to have lured customers into making purchases in the last couple of months.

While consumer demand may be picking up, demand for capital goods might take a while to revive. While companies such as Larsen & Toubro have managed to grow their order books by scouting for opportunities overseas, others such as BHEL are struggling; the firm’s orderbook, at the end of March 2014, had shrunk to R1.01 lakh crore. Nonetheless, companies have been able to dispose off assets whether in the home market or overseas—Indian Hotels sold a hotel in Australia earlier this week while the Jaiprakash group sold a power plant in March—and that should help them pare debt and pay out less by way of interest. While the levels of NPAs and restructured assets of banks suggest that a large number of companies are still not out of the woods—banks recast

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