FE Editorial : False dawn
The Financial Express: Nov 09 2012, 01:13 IST
On the face of it, it would appear that the corporate sector has put up a reasonably good show in the three months to September 2012. Despite the top line not growing as fast as it has in recent quarters, profits have been decent because companies have managed to protect their margins by keeping costs in check. However, the big picture hides the grim reality that capital expenditure is slowing; results for a sample of 1,200 companies show that depreciation in the September quarter has risen at the slowest pace in the last couple of years, apart from remaining virtually flat in the last three quarters. Those keeping track of investments say that while no management is really rushing to add fresh capacity in a difficult economic environment, key sectors like cement, hydrocarbons and metallurgy in particular are seeing very little fresh money coming in. Going by the performance of BHEL whose profits fell 10% y-o-y on flat revenues, and whose order book was smaller at the end of September than it was in June, it would seem that even the power sector is no longer humming with activity. Delays in execution—the result of companies dragging their feet—are dogging capital goods firms as much as the slowdown in capex activity. Orders at Thermax fell 5% y-o-y in the September quarter, while ABB didn’t just miss earnings estimates by a mile but also saw its orders plunge 33% y-o-y, with big wins eluding it altogether. Management commentary is more than circumspect,
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