Company results for the quarter ended December 2009 perhaps mark the turning point for India Inc after the period of slowdown. An analysis of 2,000 companies shows that net profit increased by a whopping 41% as compared with the same period last year and net sales by 14% in the same period. Some of the impressive growth is because of the low base effect of the same quarter in the previous year and sales are yet to reach 2007 levels. Of course, the government?s stimulus packages played an important role in the performance of sectors like auto, cement and metals, which showed stellar results. IT companies reported uptick in margins and headcount addition by the top three players was most encouraging. Interest expenses of the overall sample dropped to single digit?a clear indicator that despite sluggish bank credit offtake, companies have been able to tap other sources of funds at cheaper rates even though bank funds were available in plenty.
However, sectors like fast moving consumer goods, telecom, real estate and pharma were dampeners. Companies in the fast moving consumer goods segment, which otherwise reported healthy bottomline growth even during the economic downturn, disappointed as consumers opted for lower-priced products, especially in categories such as soaps, detergents, tea and edible oil, in the wake of spiralling food prices, which ate into monthly household expenditure. In the telecom space, while the industry subscriber growth scaled new highs with monthly subscriber additions of 15 million, it was the weakest quarter in terms of revenue growth because of the intense competition. Sequentially, revenue per minute of service providers declined 10% and now everything hinges on a successful 3G auction, which can increase earnings of companies. Interestingly, small and mid cap companies across all industries reported higher topline growth and the tempo will only continue if banks extend credit to this segment more aggressively for their capacity expansion plans. Going ahead, sectors like auto, metal and fast moving consumer goods may face margin pressure because of rising input costs and companies will have to look at innovative ways to improve operational efficiency. There is still enough opportunity for volume to grow, especially in sectors like capital goods, FMCG, cement and retail. Demand will certainly play a much bigger role in the earnings growth of corporate Indian in the next few quarters. Interestingly, the capital goods industry is yet to see any considerable increase in order flows. The revival of the industrial Capex cycle may well be the key to a stronger rebound in the economy.
