Out of BSE 500 companies, 291 companies-- excluding BFSI and Oil & Gas companies -- showed clear signs of improvement in bottom line in the second quarter of FY17. Net profit for this group showed a healthy growth of 9 per cent over the corresponding quarter last year. The y-o-y percentage growth in the same period last year was 2.61 per cent.
Automobile & ancillaries, capital goods, FMCG, steel, media & entertainment contributed to the growth in bottom line while consumer durables, pharma & healthcare, power and telecom were laggards.
Operating profit also improved, registering a y-o-y growth of 10 per cent compared to 6.67 per cent growth in the year-ago period. Operating profit is a measure of the company's ongoing business conditions and shows how efficiently the business is being run. 145 of these 291 companies reported double digit profit margins as compared to 130 companies a year ago.
Growth in gross sales however slipped -- from 8.15 per cent last year to 5.25 per cent in Q2 FY17. Net sales grew at 5 per cent, largely, in line with Q2 FY16.
Automobiles and ancillaries sector has slowed down with 19.32 per cent growth in profit after tax as compared to 97.74 per cent growth in the same period last year. Tata Motors is the cause with net losses to the tune of Rs 630 crore as against a loss of Rs 288 crore in the corresponding quarter last year. Eicher Motors has topped the sector with 19.92 per cent profit margin. Maruti Suzuki has increased its revenues by 30 per cent and profits have grown by 60 per cent y-o-y. "Festive season resulted in volume growth in sales of cars. Also, payout of 7th Pay Commission increased consumption demand," points out CARE Ratings in its Corporate Performance Q2-FY17 report.
Revenues for the capital goods sector have shown a good jump y-o-y, from 1.5 per cent last year to 10.8 per cent this year. Net profits have grown at 52 per cent - bottom line for these 291 companies had almost doubled in the same period last year. Operating profits have shown a robust growth of 41 per cent.
Steel and iron revenues rose by 16.6 per cent, driven by JSW Steel's 22 per cent y-o-y rise. "Steel sector's performance was supported by the government through imposition of anti-dumping duty on flat products and extended MIP (minimum import price) on long products till December," says Prasad Koparkar, Senior Director, CRISIL Research. The sector saw a great shift from losses of Rs 128 crore in September 2015 to net profit of Rs 946 crore Q2 this year.
Consumer durables have disappointed the markets with bottom line dropping by 293 per cent y-o-y. Net profit for Videocon Industries has fallen from Rs 8 crore in September last year to a net loss of Rs 382 crore rupees this year. Profit margins took a hit too.
Healthcare and pharma sector saw a meagre top line growth of 3 per cent. Prominent players such as Cadila Healthcare, Cipla, Dr Reddy's Labs, Torrent Pharmaceuticals and Alembic Pharmaceuticals saw fall in revenues over last year. Mr. Nikhil Khandelwal, MD of Systematix Shares & Stocks says, "A combination of factors, primarily 4 reasons: a) USFDA alerts on companies' plants (DRL, Sun / Ranbaxy and Cadila), b) impact of price control on a large range of products in India (highest impact on Cadila, Cipla, Torrent, Sun and Alembic), c) a significant price drop of generic drugs in US markets (impacting DRL, Lupin, Cadila, and Alembic) along with, d) currency fluctuations impacting companies' growth in CIS and Latin American markets - have been drivers for low growth of major companies in the pharma value chain."
Even IT sector saw a deterioration in top line growth -- 7.34 per cent against 12.5 per cent last year. Operating profits slowed from 9.71 per cent last year to 2.67 per cent this year.
Power saw a y-o-y fall in net profit by 10.38 per cent while in the same period last year it had witnessed a growth of 47 per cent. While profits for 7 out of 9 power companies declined, JSW Energy led with a fall of 103 per cent over last year.
Construction material, including cement, saw a boost in profit after tax with y-o-y growth of 36 per cent in the quarter ended September against a negligible growth of 0.9 per cent in the same quarter last year. Sequentially, profits have however fallen by 24 per cent while revenues are down 10 per cent (over the April to June quarter).
Among the top companies in terms of revenue, Indian Oil Corporation has reported a profit after tax of Rs 3122 crore in the September quarter against a loss of Rs 450 crore in the same period last year.
Meanwhile, the central government's demonetisation move has undoubtedly created chaos and it could hurt corporate performance in the December quarter. It will affect the sectors where most activity is done through cash. Realty and construction material are expected to take a big hit.