A sharp fall in global commodity prices has propelled India Inc’s operating profit to a six-year high even as revenue growth remained muted.
According to an analysis of 2,972 companies, excluding banks, financials and downstream oil companies, Indian companies’ June quarter income from operations grew 3.3% year-on-year (y-o-y) to R1.85 lakh crore — the highest level in more than 25 quarters.
The growth trajectory in operating profit came after two successive contractions of 22% and 5.5%, respectively, during the preceding quarters, Capitaline data showed.
Net sales for the three months ended June shrank 3% owing to a weak demand scenario and companies’ inability to maintain pricing power.
Combined revenue in Q1 fell to R11.05 lakh crore — the lowest quarterly net sales in two years — and also impacted the Indian corporates’ bottom line. Overall, first quarter net profit declined 5.6% to R73,773 crore, data showed.
In the first quarter of FY14, all these firms together had reported a turnover of R10.21 lakh crore, data showed.
According to Anand Kumar, VP, Bank of America Merrill Lynch (BAML), first quarter earnings were slightly ahead of expectations after sharp disappointments in the previous three quarters.
“The good news is that earnings were ahead of our expectations. Secondly, Ebitda margins also surprised positively and expanded 120 bps on a year-on-year basis. The bad news is that profit growth for Sensex companies continues to be anemic,” Kumar said in a note to investors.
Commodity companies — directly and indirectly benefitting from the decline in crude oil and commodity prices — largely contributed to the growth in operating profit during the first quarter. The aggregate raw material cost as a percentage of sales for the quarter dropped by four percentage points to 43.8% from a year ago. The Bloomberg Commodity Index has slid 16% so far in 2015.
For instance, Jet Airways reported a five-fold jump in operating profit to R351 crore, driven by a sharp fall in aviation turbine fuel (ATF) prices and good holiday season.
Ashok Leyland and Maruti Suzuki also benefitted from falling commodity prices and forex gains.
Brent crude oil prices on the Intercontinental Exchange have lost nearly 30% in the last six months and now trade around $47 dollar per barrel.
Ashok Leyland’s earnings before interest, taxes, depreciation and amortization (Ebitda) jumped nearly four-fold to R389 crore. The Ebitda marings at the Chennai-based automobile company expanded to 10.1% in the June quarter compared to 4.1% in the corresponding period last year as the company’s raw material cost-to-sales fell 69.4%.
Maruti Suzuki’s reported an Ebitda of R2,189 crore, a growth of 58% from the previous year.
Data also showed that more than one-third of the companies reported losses in last three quarters. However, that number of firms has reduced from 1,127 in March 2015 to 1,012 companies in Q1FY16. In Q3 of FY15, there were 1,045 loss-making companies.
Fourth quarter of FY15 saw the lowest quarterly profit in last six years. The combined profit stood at R31,222 crore, thanks to the huge loss posted by companies such as Vedanta (R19,228 crore), Tata Steel (R5,674 crore), United Spirits (R1,799 crore), Jet Airways (R1,729 crore) and Suzlon Energy (R1,212 crore).