It was never expected to be a cracker of a quarter but most companies have not met even the very tempered expectations of analysts. Indeed, the stellar performance of Maruti Suzuki notwithstanding, the earnings season has got off to a disappointing start with TCS missing lowered consensus estimates and Infosys not doing too well either. But more than the IT majors, the results of core sector players are really worrying since it makes it clear that a full-fledged recovery is still some time away. Volumes at ACC fell 10% y-o-y reflecting the continued weakness in demand for cement across markets; the company’s dispatches in the March quarter are the lowest in any March quarter in the past 5 years. Ultratech too reported poor dispatches, down 3% y-o-y though it was able to increase prices. JSW Energy’s sales rose just 7% y-o-y as blended realisations for the power segment dropped 10% y-o-y. And at Siemens, order inflows during the quarter were virtually flat.
The performance of the corporate sector ties in with the core sector data; at 3.5%, the growth was the lowest in several years. For a sample of 194 companies (excluding banks and financials), the top line is down 10% y-o-y, suggesting that companies are neither able to drive up volumes and nor do they have much pricing power. To be sure, the data is skewed since it includes Reliance Industries and Cairn India which have seen revenues pressured because of the fall in the prices of crude oil—Cairn’s realisations dropped 20%. While it might seem the numbers for the sample are better because profitability has somewhat improved—operating profit margins have risen by about 140 basis points—the fact is that the margins should have been far better as costs have contracted sharply. What this means is that companies haven’t been able to cash in on the sharp drop in prices of virtually all commodities—net profits for the sample contracted by about 8% y-o-y. There is simply not enough demand for either consumer goods or heavy equipment. In fact, how anaemic demand is right now can be seen in the loan growth of banks and also that of intermediaries such as Mahindra & Mahindra Financial, where it decelerated to just 8% in FY15, down from 49% y-o-y in FY11. Without a good monsoon, it might be difficult for corporate India to even maintain the current levels of profitability.