The earnings season has begun in right earnest, and the first batch of results doesn’t look too good. The results of the 58 companies on the BSE 500 Index (that had declared results till the time of going to press), accounting for 22 per cent of its market capitalisation, points to a slowdown. Profits have taken a hit during the fourth quarter of 2007-08, though revenue growth has been robust.
EBIDTA for the sample companies rose 22 per cent YoY and net profit 18 per cent during the quarter. This is the slowest growth in the last seven quarters, stretching back to the second quarter of 2006-07.These early trends indicate that corporate profitability has been impacted nearly 400 bps, both at the EBIDTA and net profit levels, for the financial year ended March 31, 2008 compared to the previous financial year. Says Ashok Jainani, Head (Research), Khandwala Securities: “We believe that profits have been impacted mainly due to higher interest costs, lower incidence of other income and higher input costs.” Analysts believe that there is another, potentially more damaging, reason for the pressure on margins— a demand slowdown. Says Jainani: “So far, companies have been able to partially pass on the rise in input costs to consumers as demand momentum provided traction. But this will become more difficult going forward.”
Higher interest rates have already started impacting volume growth in the auto and consumer durables segment. Its fallout can be seen in the results of Maruti-Suzuki India, which posted a 34 per cent decline in its Q4 net profit to Rs 297.6 crore compared to Rs 448.5 crore in the previous corresponding quarter.
The big picture
The boom times are over, it seems.
Cement companies, too, are facing a massive pressure on their operating margins due to the unprecedented rise in raw material costs, especially coal. The net profit of cement major ACC grew only marginally by 0.53 per cent to Rs 357.54 crore in the January to March quarter even as total income was up 7.68 per cent to Rs 1,861 crore.
The company admitted that the industry faces challenges of meeting steep cost escalations which exerts pressure on margins Then, there is the slowdown in the US to contend with, particularly for IT companies.Except for Satyam Computer Services, all the other Tier I information technology firms (Infosys Technologies, TCS, Wipro and HCL) reported poor sequential growth numbers. Infosys saw a nominal PAT increase of 1.46 per cent QoQ while total revenues were up 6.35 per cent. TCS actually reported a sequential decline in net profits by 6 per cent even as revenues were up 3 per cent. Says Hitesh Agrawal, Head (Research), Angel Broking: “Given the challenging business environment in the US, it’ll be tough for IT companies to deliver even on the muted guidance given by them for this year.”