Business Today

A Long Wait

Early bird corporate results show there is little reason to cheer.
Avneet Kaur   New Delhi     Print Edition: June 4, 2017
A Long Wait

Early bird results have failed to bring much cheer to corporate India. A study of the fourth quarter results of 167 listed companies - excluding oil & gas and BFSI (banking, financial services and insurance) players - which have declared quarterly results shows 6.4 per cent quarter-on-quarter growth in top line and 6.6 per cent contraction in net profit. This rise in income is the highest in 17 quarters while the fall in bottom line is the steepest in 15 quarters. However, year-on-year, sales have risen 7.4 per cent, the highest in all quarters of 2016/17, while net profit is down 2.6 per cent, the steepest fall in eight quarters.

For the complete set of 224 companies, the profit after tax grew 3.1 per cent over the previous quarter, while top line rose 6.4 per cent. On a year-on-year basis, revenues rose 13.1 per cent, compared to 8.6 per cent in the same period last year. Operating profit grew 2.7 per cent as against 14.1 per cent last year, whereas net profit growth fell from 9.7 per cent in the fourth quarter of 2015/16 to 7.8 per cent in the fourth quarter of 2016/17.

Top Line Cheers, But Profits Disappoint Total revenues grow highest in 17 quarters, net profit fall is steepest in 15 quarters

The operating profit of 167 companies fell half a percentage over the previous quarter. Year-on-year, however, the operating revenue grew 4 per cent, less than one-fourth of the 17.3 per cent growth in the fourth quarter of 2015/16.

Cost of raw material and services rose 11.9 per cent over the same quarter last year, the highest in the past nine quarters. "Rubber prices are up 51 per cent on a year-on-year basis, lead prices are up 30 per cent, while cold rolled sheet prices have risen 18 per cent. Zinc, coking coal, copper and aluminium have also seen an increase in prices. Crude oil prices have also risen and so have prices of flour, sugar, milk, palm oil, etc," says Mayuresh Joshi, Fund Manager, Angel Broking Pvt Ltd.

Other income, which includes treasury income, fell 30 per cent quarter-on-quarter. Year-on-year, the fall is 26 per cent. This is the steepest fall in 20 quarters. "While the fall in 10-year G-sec yields between March 2015 and March 2016 was 24 basis points, or bps, the dip was much steeper between March 2016 and March 2017 at 81 bps. The yield, in fact, fell in the first three quarters, but rose 18 bps in the fourth quarter. Hence, there is a possibility of treasury income dipping," says Deepak Jasani, Head Retail Research, HDFC Securities.

Moving to sectoral performances, we divided these companies into five major sectors - manufacturing, BFSI, non-financial services, power, and oil & gas. Among these, manufacturing is a clear winner, followed by BFSI. Non-financial services and power have been laggards so far.

The Powerhouse

The manufacturing sector revenues grew 11.3 per cent quarter-on-quarter. In the previous quarter, they had fallen by 1.1 per cent for this sample. Net profit rose 22.4 per cent over the previous quarter. On a year-on-year basis, too, the sector has shown an impressive 11 per cent rise in revenues. Net profit rose 17.6 per cent.

Auto and FMCG companies reported a rise in revenues but profits shrunk. The auto sector reported a 6.6 per cent quarter-on-quarter growth in top line, as against a 5.8 per cent dip in the previous quarter. The year-on-year top line growth has been 14.6 per cent as against 20.2 per cent in the fourth quarter of 2015/16. "The rise in revenues is a function of lower base (owing to demonetisation) and the subsequent recovery," says Pankaj Pandey, Head of Research,

In spite of NPAs

In the BFSI sector, the quarterly net profit has risen in double digits, 19.4 per cent, over the previous quarter, and 21.4 per cent on a year-on-year basis. The sector has been hit badly by the problem of bad loans. Mid-sized private lender Yes Bank saw its gross non-performing assets, or NPAs, balloon to `2,018.56 crore from `748.98 crore in the fourth quarter of 2015/16. The gross NPA ratio almost doubled to 1.52 per cent. ICICI Bank also saw a huge degradation in assets with NPAs of 4.89 per cent as on March 31, 2017, compared to 3.96 per cent in the previous quarter.

Digging deeper, the core net interest income of Yes Bank grew 32.1 per cent to Rs 1,639.7 crore, while non-interest income grew 56.6 per cent to Rs 1,257.4 crore. More banks are expected to report a higher jump in non-interest income than interest income. Pandey of says, "Credit growth was in single digits in 2016/17. Additionally, growth picked up only in the far end of the quarter, which led to slower rise in net interest income."

Need for Growth

The non-financial services companies, which include information technology, health care, telecom and hospitality players, have reported dismal results. Profits fell 20 per cent over the previous quarter. Profits shrunk on a year-on-year basis too, as against a rise of 37 per cent in the fourth quarter of 2015/16.

IT companies have not shown any impressive increase in top line compared with the previous quarter. Year-on-year, net profit rose 6.2 per cent, the highest in all the four quarters of 2016/17. Tata Consultancy Services, the largest software services provider, delivered a muted 0.95 per cent growth in quarterly revenue over the previous quarter. The net profit fell 4.1 per cent. On a year-on-year basis, however, revenues grew 5.15 per cent and net profit 1.8 per cent. Infosys also delivered disappointed numbers. While its top line fell 0.19 per cent, its net profit contracted 1.02 per cent over the previous quarter. Oil and gas sector major Reliance Industries reported a 37 per cent year-on-year rise in revenue to `74,598 crore.

Recovery Ahead

It is still too early to reach a conclusion on India Inc's latest performance. Pandey of expects earnings to recover sharply in the first quarter of 2017/18 due to low base and bright economic prospects.

"The domestic economy seems on a strong footing with a reform-oriented government, front-loading of government capital expenditure and the resolution mechanism for solving the asset quality mess. All this shall ultimately lead to a stable and growth-oriented environment," says Joshi of Angel Broking Pvt Ltd.


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