With disappointments outnumbering surprises by a wide margin, the Q4FY15 earnings season would be the worst in several years. Despite very tempered expectations, India Inc turned in numbers that were very weak.
The bad news from the economy is that demand for consumer and capital goods remains muted; companies are unable to push through either volumes or price increases and that is clearly reflected from the muted top line that India Inc reported for the three months to March 2015.
Softer prices of commodities have hit producers of metals; the crash in the prices of steel — down 19% in the past six months thanks to imports flooding the market — has played havoc with the top lines of steelmakers. The pressure persists with the Tata Steel management indicating prices, since March, are lower by Rs 1,500/ tonne.
Supply side constraints are not always responsible for poor output. The lower plant load factors, for power producers like NTPC — down to 72.5% from 76.7% y-o-y — has resulted in lower generation, not because of a shortage of coal but because of lower demand from discoms. NTPC’s revenues fell 8% y-o-y in Q4FY15 pushing down the net profits by a steep 28% y-o-y. Capital goods players haven’t had a good quarter either; BHEL reported Q4FY15 sales of Rs 12,400 crore, down 16% y-o-y.
At Larsen & Toubro, too consolidated gross revenues were up an anaemic 3.8%, attributed by the management to sectoral constraints and the slowed pace of execution. There were some exceptions; stand-alone net sales at Tata motors rose 26% y-o-y, on a relatively small base, led by better average selling prices, higher volumes for M&HCVs and passenger cars, and a better mix.
Which is why despite expenses coming off, operating margins for a sample of 1991 companies (exluding banks, financials, OMCs and Vedanta), have slipped 75 basis points y-o-y. Net profits at larger firms like L&T have fallen y-o-y. The stand-alone business of Tata Motors reported a PBT loss of Rs 1,100 crore. However, the company reported a positive ebitda after five quarters of losses, driven by a sharp improvement in volumes of trucks a reduction in variable incentives. Net profits at NTPC fell 5% y-o-y though after adjustments the fall is a much sharper 28%.
The capex cycle, analysts believe could take take a little longer to turn as is evident from the poor loan growth numbers reported by banks. State Bank of India reported a sub-10% rise in advances indicative of the weak demand for credit. The order backlog at BHEL at Rs 1 lakh crore at the end of March, 2015 remained flat and the order inflow during the March quarter fell a sharp 38% y-o-y. However, the consolidated order book at L&T was Rs 2.33 lakh crore, at the end of March 2015, up a reasonably good 28% y-o-y. International orders constitute about a fourth of the orderbook.
Infra companies remain under pressure: GVK Power reported a smaller loss of Rs 108 crore, down more than 50% thanks to a better performance from the airports and roads segments. However, cash flows from these divisions are insufficient to offset losses from the power division and the delay in under-construction of projects has aggravated the situation. Companies remain highly leveraged.
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