India Inc produced its weakest report card in the last six years in FY15, with earnings seeing the steepest fall since the Lehman Brothers crisis and revenue growth at a decade low, reports Devangi Gandhi in Mumbai. For a clutch of 2,192 companies, (excluding banking, financial and oil marketing companies) revenues rose at a muted 2.6% while net earnings fell 9% over the previous year. In FY15, GDP grew at 7.3%, according to the new series, sharply better than the 6.9% reported in FY14.
While companies struggled to gain volumes and pricing power, interest costs rose 10% in FY15; over a five-year period, interest outgo has been a high compounded 25.4%. Not surprisingly, interest coverage deteriorated further in FY15 with firms from the power, infra, real estate and steel sectors seeing a further impairment in the interest coverage ratio for a seventh consecutive year.
Makers of capital goods continue to rely on overseas orders. The collective net sales of 20 firms remained flat led by a more than 20% decline in the revenues of BHEL. While Larsen and Toubro reported a very weak set of numbers for Q4FY15, the order inflows during the quarter were fairly robust with the management guiding for a 15% rise in new orders in FY16 and a sales growth of 15%.
Pointing out that the divergence, between the positive top down macro parameters and corporate earnings, has widened, Barclays observed that GDP growth acceleration could be largely due to a reduction in global crude prices and, hence, does not necessarily reflect an improvement in the domestic economy.
The brokerage added that corporate stress is clearly visible in the flattish IP and negative WPI.
The topline growth for consumption driven sectors was particularly unimpressive in FY15. Thanks to a steep decline in input prices – global average crude prices fell by nearly 20% in the fiscal- sectoral majors like HUL and Asian Paints decided to cut prices of their products. Both these companies reported single digit volume growth in the the last two quarters of FY15. With rural demand weak, the auto sector, reported a muted 11% revenue growth while the earnings performance was the worst in three years. With chances of the monsoon likely to be less than normal, rural consumption could weaken further. Maruti Suzuki which commands nearly 45% of the domestic market said that deficient monsoon was cause for concern and could affect sales in some parts of the country, especially in rural markets.
However, the government has stepped up spending—expenditure in April was 9% of the budgeted amount, the highest in the past 18 years, and is aimed at kickstarting growth. However, FMCG companies remain cautious with the Hindustan Unilever management observing that any revival in demand will have to be led by an increase in rural spends.
Steel producers —Tata Steel, SAIL and Jindal Steel —reported moderate to negative growth in their revenues in FY15 thanks to the weak demand environment and a jump in steel imports— up 71% y-o-y. T.V. Narendran, MD, Tata Steel India and South-East Asia said local realisations fell sharply in H2FY15.
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