Economic indicators may be beginning to look up, but corporate earnings are faltering. The July-September period has been lacklustre for corporate India with sales growing a modest 3.2 per cent over the previous year, and profits from operations expanding by a mere 8 per cent.
In the June quarter, operating profits had grown 23 per cent year-on-year and revenues by10 per cent.
Though companies reported a 29 per cent increase in net profits for the September 2014 quarter, it was thanks largely to a leg-up from ‘other income’ from an asset sale or an investment income. This is almost similar to the 31 per cent net profit increase in the June 2014 quarter.
These numbers are from the 3,347-listed companies which have declared results for the earnings season, excluding banks, financial institutions and oil marketing companies.Slowing down
Sales growth has steadily lost pace, spiralling down from 11 per cent in the March quarter, to 10 per cent for the June and to 3.2 per cent now. Many core sectors saw a sharp drop, indicating that all is not well with the investment cycle.
For instance, power companies, with their litany of woes, clocked sales growth of 7 per cent in the September quarter, well below the 12-13 per cent in June and March.
Sales growth for steel companies also came in at a low 5 per cent in the September 2014 quarter, as weak prices on abundant supply capped realisations. Bigwigs such as SAIL, Tata Steel, and JSW Steel have all slowed down.
Power equipment and capital goods, telecom, and fertilisers are the other sectors where sales growth is losing steam.
And while raw material costs did fall, it did not materially bolster profits for all.
Costs of inputs such as coal, base metals, and crude oil have been drifting lower, but other cost heads such as staff did the opposite.
The impact of raw material savings on profits may, however, be felt in the coming quarters.Large versus small
The fall in sales growth was steeper for large companies in the September quarter compared to mid-and-small companies, given the slowdown reported by players such as Bharti Airtel, Tata Motors, SAIL, Tata Steel, NTPC, and Power Grid.
The BSE 100 companies saw sales growing 4.3 per cent in the September quarter over the year ago period, decelerating from the 14 per cent in the June and March quarters. Companies making up the mid-and-small cap indices on the BSE have seen sales growth stagnate at 5-7 per cent in the past three quarters.
But large companies have trumped the smaller ones on profitability, suggesting that they were benefiting from economies of scale in procurement. Their input costs shrank in the September 2014 quarter.
Net profit margins for large companies have held at a reasonable 10 per cent for the past three quarters. These margins for smaller companies, on the other hand, are far below at 2-3 per cent. There were also more loss-making companies in the September quarter than in the previous ones.Bucking the trend
A few sectors that bucked this trend, reporting improving sales and profit growth, include brokerage companies, auto ancillaries and cement. Brokerages benefited from booming stock trading volumes and auto ancillaries from strong replacement demand besides better commercial vehicles, two-wheeler and car sales.