India Inc in reverse gear

The results of 562 companies announced so far have jolted the investors into believing that we are in trouble... I am worried about what you might hear from L&T, Suzlon Energy and Bhel.

Dipen Sheth | Print Edition: February 19, 2009

Dipen Seth

Financial results are to stock markets what scoreboards are to cricket matches. It takes only a little bit of action for a game of cricket to take a vicious swing in an unexpected direction. The results of 562 companies (available till 28 January) have jolted the investors into believing that we are in trouble.

The revenues are up 15.6%, while profits have actually fallen 12.7%. If this were not enough, most companies are talking about top line and pricing headwinds over the next few quarters, which might dent margins and contract profits. Individual performances have varied widely. Among the frontliners, Reliance Industries, SBI and Bharti exceeded the expectations.

Reliance, of course, has surprised most on the upside, reporting a $10/bbl gross refining margin. Watch out for more action as the company's KG-D6 field spews gas and crude this February. With SBI, it was loan book and deposit growth plus MTM gains on its bond portfolio that drove performance.

Bharti delivered yet another quarter of reassuring profit growth, 38% YoY and 18.5% QoQ. Infosys and TCS were at, or around, guidance, but sounded pessimistic about their prospects. Hero Honda stood out in the ruins of the auto sector, while NTPC's numbers put paid to all the rumours about coal shortages threatening to drag down generation volumes. The metals pack suffered in line with the collapse of commodities globally. SAIL and Tata Steel reported drastic profit declines, with no end in sight for another few quarters. For commodity companies, it is that time of the investing cycle when they need to be valued on EV/capacity rather than their near-term profitability.

In the financial sector, the profits, growth rates and fee incomes of some private banks (HDFC Bank and Axis Bank) came off their recent parabolic trajectories, proving that they were unsustainable. Banks need to ensure that credit growth continues even at a lower (but sustainable) rate and that asset quality is preserved. As we go to the Press, most of the leading lights of the capital goods, construction and realty sectors are yet to announce their results. Among those that have, Punj Lloyd's losses, HDIL's margin slippage and Crompton's flat QoQ numbers have me worried about what you might hear from L&T, Suzlon and Bhel by the time you get your copy of the magazine.

It's important that corporate India does not get sucked into a vortex of de-growth this quarter. As mentioned earlier in this column, the downturn presents some unique opportunities. If some parts of India Inc. get it right, we might see them pull ahead of the pack. And make the much needed money for investors.

Dipen Sheth is the Head of Research, Wealth Management Advisory Services. E-mail: dipen@wealthmanager.ws

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