Fab five sectors salvage India Inc's bottom line 

Deepak Korgaonkar & Viveat Susan Pinto / Mumbai May 14, 2012, 00:52 IST




Five sectors have helped prop up the numbers for India Inc in an otherwise dismal quarter ended March. An analysis of 989 companies that account for 52 per cent of the total market capitalisation on the Bombay Stock Exchange shows net profit growth of 2.7 per cent over the previous year was reported mainly due to strong profit numbers registered by players in banking, cement, information technology (IT), pharmaceuticals and fast moving consumer goods (FMCG).

Take these out, and the net profit of the sample size sees a substantial decline — as much as 9.6 per cent for the quarter.

What’s worrying is the quality of overall earnings. In a May 12 report, Dipojjal Saha of Edelweiss Securities says, “For companies within our coverage universe which have declared results so far, year-on-year earnings growth came in at three per cent (the Edelweiss expectation was four per cent). The disappointment is on the core earnings front, as some part of the earnings surge may have been driven by higher other income (e.g. PSU banks, RIL and Maruti Suzuki). For companies that have declared results so far, we estimate that other income as a proportion of sales is at 2.7 per cent, which is a multi-quarter high (11 quarters).”

Saha adds, “Margins continued to disappoint, contracting 320 basis points year-on-year. Even if balance earnings (of remaining companies, which are yet to announce results) were to come in line, earnings growth for our coverage universe would be 3-3.5 per cent year-on-year, implying a fifth consecutive quarter of sub-10 per cent earnings growth.”

Just how important the five sectors have been to India Inc’s performance in March 2012 quarter can be gauged from this: Of 989, as many as 229 companies have reported a net loss, while another 212 firms have reported a drop in net profit. These companies are all out of the fab five list.

So, how did these entities in the five key sectors manage to sustain profit growth at a time when inflation as well as interests costs have been biting hard?

In FMCG, for instance, analysts attribute this trend to consistent price hikes taken through the quarter as well as the full year ended March. On average, companies took up product prices by at least 5-7 per cent during each quarter for the fiscal ended 2012. That resulted in overall profit growth of 27 per cent for FMCG companies as a whole.

Sunil Duggal, CEO, Dabur India, says the strategy has been to take measured hikes rather than pass on all of the commodity inflation in one go. “Who wants to add to the general inflation prevalent around?” he asks.
Source:ET