Signs Of Recovery

Updated: Jul 30 2002, 05:30am hrs
India Inc’s financials during the first quarter of this fiscal clearly point to a nascent industrial recovery. Not only are sales up for the 274-odd sample of companies that’ve so far reported their results, but their bottomlines also present a picture of corporate health. An 8 per cent growth in sales in fact enabled such companies to register growth in net profits of 14.5 per cent. The impact of higher volumes, better product mixes and cost reduction drives are reflected in various parameters of their performance. Operating profit margins thus have sharply improved during the first quarter ending June 2002 when compared to the similar period last year. At 27 per cent, such margins are high enough to suggest a turnaround in the fortunes of India Inc. Q1 gross profit margins too are respectable at 14 per cent. While all of this is the good news, a bit of caution is also in order. For starters, the results are highly uneven across various industries, implying that the recovery is far from being broad-based. Whether or not this process can be sustained is also a big question considering the worst dry spell in recent memory. The impact of a wayward monsoon might become evident in the following quarter itself.

Good Q1 results are most evident in industries like steel, automobiles and their ancillaries and pharmaceuticals, while the numbers for those in information technology and fast moving consumer goods are not so good. When industries like steel do well, it is a clear sign that industrial activity is picking up. Tata Steel thus registered a three-fold rise in net profits. Other companies like Jindal Vijayanagar Steel and Essar Steel also turned in a better performance. Exemplifying the theme of recovery is Tata Engineering which produced the best quarterly performance in five years, thanks to higher vehicle sales and cost reduction. Pharma too registered bullish financials with companies like Ranbaxy Laboratories, Cipla, Novartis India etc showing substantial improvements in both net profits and sales. Bayer India, however, showed a massive 475 per cent rise in its net profits on a 10 per cent increase in sales, clearly pointing to higher margins in its business. However, uncertainties in overseas markets like the US affected the Q1 numbers of IT companies like Satyam Computers. By contrast, Tata Infomedia did exceptionally well. The biggest disappointment, however, is in the poor showing of the FMCG major Hindustan Lever Ltd whose sales and net profits worsened in the first quarter. Since this company is highly exposed to rural India, its dismal performance unmistakably suggests that all is not well with industrial demand — a concern that is all the more salient given the erratic South-West monsoon this year.