India Inc tightens belt for impressive Q2 numbers

Written by Sandeep Singh | New Delhi | Updated: Oct 20 2014, 13:36pm hrs
India IncIndia Inc continues to suffer on the revenue expansion front and overall growth. Reuters
India Inc reported impressive growth in net profit for the second quarter ended September 30. However, a closer look at the results of the companies that announced their results until Friday, shows that it is savings on expenditure that is driving those numbers up and not actual revenue growth.

The three-month period ending September is the full quarter in operation after the change in government at the Centre. But India Inc continues to suffer on the revenue expansion front and overall growth.

The 33 companies that are part of the BSE 500 and that have announced their results (including companies such as Reliance Industries, TCS, Infosys and Hero MotoCorp and excluding financial institutions) together have witnessed a contraction in their revenues by almost 1.5 per cent from Rs 1,84,020 crore in September 2013 to Rs 1,81,303 crore in September 2014. However, their aggregate profits rose by 10.7 per cent from Rs 17,870 crore to Rs 19,246 crore primarily driven by savings on expenditure and slowdown in the interest expenditure.

The companies however, managed to bring down their total expenditure by 2.8 per cent to Rs 1,55,451 crore from Rs 1,59,905 crore in the same quarter last year. Even the growth in interest expense for this set of companies, declined from 16.3 per cent in September 2013 to 10.3 per cent in the previous quarter thereby indicating a declining trend in interest expense for companies.

The overall contraction in revenues is a reflection of decline or slower revenue growth for IT majors TCS, Infosys and HCL Technologies and a weak performance on the revenue front by Reliance Industries.

The big results have been of the IT majors and while a depreciation in rupee in Q2 2013-14 benefited them significantly, the benefits are no longer there this year and therefore growth in the profits and the topline slipped, said Pankaj Pandey, head of research at ICICIdirect adding that he expects the revenues (topline) for Sensex companies to grow by 4 per cent while the bottomline (net profit) is expected to grow by 7 per cent this quarter.

For oil companies while the global crude oil prices may have come down the benefits may come later as their profits this quarter may get impacted by the losses on account of their existing inventory.

While the numbers may not seem encouraging statistically, experts point out that there is a visible margin expansion happening for various sectors and the quality of earnings is improving.

Earlier the growth was skewed towards defensive sectors but now there is an overall growth. The margin for cement sector has expanded to 440 basis points and that for capital goods has grown to 90 basis points, said Pandey.

PROFITS UP 10%

* Aggregate profits rose by 10.7% from Rs 17,870 crore to

Rs 19,246 crore primarily driven by savings on expenditure and slowdown in interest expenditure

* The companies however, managed to bring down their total expenditure by 2.8%

* The three-month period ending September is the full quarter in operation after the change in government at the Centre