FE Editorial : Not yet bottomed out
Moreover, the capital goods space isn’t seeing a meaningful recovery yet—Larsen & Toubro’s 10% yoy rise in revenues suggests it may be losing momentum because the increase in the first half of the year had been a far more sprightly 21% yoy. Smaller firms, too, are struggling—consolidated revenues at Rallis, for instance, were up just 5% yoy with the chemicals business faring poorly. What helped companies, this time around, was some softening in commodity prices—as a share of sales, the cost of raw materials for the sample has risen just 92 basis points yoy, a much smaller increase compared with that in previous quarters. Lower fuel prices, for example, have driven up profits at UltraTech while Asian Paints gained from lower input costs.
What is not helping matters, however, is the absence of regulatory clarity; the ban on mining operations in Goa and Karnataka, for instance, hit Sesa Goa’s bottom line with the miner posting a loss of R170 crore. So, until the government puts proper policies in place, the production of some key resources could continue to be hampered. For some time now, the Street has been looking for signs of a turnaround in the capex cycle; while L&T’s order book grew 14% yoy in the December quarter and the firm’s order backlog is now R1.62 lakh crore, one would like to see how much of this is executed and how fast. Interestingly, about 22% of the inflows during the quarter were from overseas markets. So, while the growth in the bottom line may seem quite spectacular, much of it has come from lower costs rather than higher sales. In short, the worst may not be over for India’s corporate sector—except perhaps in spaces like IT. Some managements—Bajaj Auto, for instance—have cautioned that it could be a while before the home market sees a picks up. Also, the profit warning from Tata Motors for its JLR subsidiary is a sign that the global economy too needs to look up before India Inc can call a recovery.
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