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Thursday, August 27, 2009

Tata Steel incurs Rs 2,209-cr loss in Q1

FALLING demand for steel products in the US and the UK left Tata Steel with a consolidated Rs 2,209-crore loss in its fiscal first quarter. 

    The near-40% fall in steel prices and high raw material costs in the three-month period hit the world's sixth-largest steel maker by capacity hard. The company earns more than half of its business from its overseas units. It posted a consolidated net profit of Rs 3,901 crore in the same quarter last year. 
    "The results reflect the impact of the global economic downturn, particularly in the developed markets," said managing director B Muthuraman. "The group is currently undertaking several restructuring initiatives internally. The global recovery is expected to be slow, and the company will continue to focus on operating performance and liquidity management," he added. 
    The Tata Steel scrip fell about 5.1% to Rs 436.40 on BSE on Thursday, on a day when the broader index rose marginally. 
    Tata Steel's European operations have been operating at half capacities due to closure of units, a depleted workforce and an overall reduction in steel demand. 
Steel cos also hit by rising coal prices 
    The commodity, which has applications ranging from cars and consumer goods to homes, saw one of the slowest quarters, as the global recession forced users to cut down on purchases. 
    Tata Steel Europe CEO Kirby Adams said: "We anticipated that the first two quarters of the current year would be a difficult one for European steel makers, which is why we started taking action early this calendar year to align our output and costs to the lower demand levels in Europe. The unexpected termination of the Teesside off-take agreement in April 2009 by the four off-takers cost Tata Steel Europe Rs 244 crore ($51 million) in EBIT and Rs 742 crore ($155 million) in operating cash flows during the first quarter." 
    The grim outlook by Tata Steel comes in the wake of recent robust estimates by large broking houses. In an August report, Morgan Stanley said Tata Steel could likely see an earnings revival in the European operations beginning third quarter of current fiscal. "Strong global steel output growth (4% month-on-month, though an 11% on year decline) in July 2009 seems to be indicative of an improvement in steel demand, which looks encouraging," the report said, adding, "This signals a meaningful increase in Tata's capacity utilisation." 
    Tata Steel's overseas revenue in the June 2009 quarter almost halved, compared to a 10% decline in domestic net sales. Unlike in the overseas market, steel prices in India are partly under government control. Also, domestic sales volumes grew 22% as against a 35-40% decline at Corus. 
    The absence of an integrated operation at Corus is also seen contributing to Tata Steel's large consolidated loss. Unlike Tata Steel India, where iron ore and coal mines are captive, the European units depend entirely on market purchases of these commodities, and are, hence, subject to extreme volatility in their prices.
    Strong demand has pushed coal prices to rebound from a 35% decline last year, with international news agencies reporting that coal futures for September delivery at Rotterdam have risen 39%. According to an ETIG analysis, a comparison with ArcelorMittal, the world's largest steel producer, shows Tata Steel's overseas operations had a negative EBITDA of $82 per tonne of steel, compared to a positive EBITDA of $104 per tonne by ArcelorMittal's flat carbon Europe business.



Flop show for Bollywood stocks as box-office collections dry up

A 'TEAR JERKER' is on show for shareholders of Bollywood production and exhibition houses, which are still down 70-80% since the market peaked in January 2008. 

    According to media analysts, lesser number of big-banner films, an influx of niche crossover films, low success rate and declining audience turnout have wrecked havoc on the bottomlines of production houses and distributors. "Year 2009 has been very bad for Bollywood companies," said Anand Shah, media analyst, Angel Broking. 
    "Business was dull during the first three months of 2009 as a result of early school and college examinations; IPL and Champions League stole the limelight between April and June. The producers-multiplex strike and the resultant two-month no-release phase hit the industry very badly. The Swine flu also delayed a few good releases and reduced occupancy alarmingly," Mr Shah added. According to analysts, average occupancies in multiplexes have declined to as low as 25-30% levels in FY2009. Film content is said to be the major culprit for low audience turnout. Movies like New York, Raaz (The Mystery...), Love Aaj Kal and Kambakth Ishq managed to sail through, thanks to a strong star-cast and superior promotion. 
    In comparison, 2008 was a better year with a blockbuster release (Rab Ne Bana Di), 3 super hits (Singh Is King, Jaane Tu and Jannat) and 3 hits (Race, Golmaal Returns and Jodhaa Akbar) out of 30 films released. (Source:Boxoffice India.com). According to analysts, multiplexes in north Indian cities and southern cities have better occupancy figures than other parts of the country. Even in a metro like Mumbai, there is no weekday movie-going culture; average occupancy is less than 30% at most multiplexes on weekdays. 
    "There is no way you can increase occupancy rate; you can't go on increasing ticket prices as well. The only way to increase revenues is by adding more exhibition centres," said Aashish Upganlawar, media analyst, Sharekhan. 
    According to analysts, the business model (of distribution and production companies) makes them high risk investments. While occupancy risk is the dominating factor for ex
hibitors, selling the film is a major task for producers. Distributors are sceptical about buying movies; the content has to be really good for films to sell. Moreover, pre-sale values (of spots, add-ons and merchandise) have come down drastically over the past few months, experts say. 
    "There has to be some real good reason for investors to invest in Bollywood stocks. There is too much risk in the business. There are better alternatives in the market than film stocks," Mr Upganlawar added. Echoing Mr Upganlawar, Preeti Saxena, media analyst, SMC Global Securities, said: "Investors with a one-year horizon can invest in film stocks. Film stocks are likely to do well during Diwali and New Year with several blockbuster releases," Ms Saxena added. According to Mr Shah of Angel Broking, the conscious decision of industry peers to reduce starcast remuneration and tighten filming budget will improve profit margins of film companies. 
    shailesh.menon@timesgroup.com 



3G spectrum bids to start at 3500cr, WiMAX 1750cr


Govt Expects To Get A Minimum Of Rs 25,000 Crore From Auctions

A MINISTERIAL panel has fixed Rs 3,500 crore as the minimum bid price for the auction of third-generation (3G) wireless spectrum, evoking dismay from telecom companies that see it as exorbitant. 

    But telecom minister A Raja's announcement that the government hopes to complete the auction of 3G radio frequencies—vital for services such as video-calling and high-speed internet access on mobile phones—within 90 days came as a relief for mobile firms, which have already begun preparations to launch the new service. 
    The empowered group of ministers (EGoM) headed by finance minister Pranab Mukherjee also fixed the base price for WiMAX spectrum for wireless broadband services at Rs 1,750 crore. 
    The EGoM also decided that a total of five players would be allowed to offer 3G services in every circle, of which one slot would be reserved for state-owned telcos, BSNL & MTNL. 
    This new reserve price is nearly Rs 500 crore lower than that agreed to by Mr Raja and Mr Mukherjee during a meeting with Prime Minister Manmohan Singh in June. 

    "This is final. We hope to complete the auctions within 90 days from today (August 27) and we expect to get a minimum of Rs 25,000 crore from these auctions," Mr Raja told ET. 
    This estimate is lower than the one made by Mr Mukherjee, who said while presenting the Budget that the government hopes to collect Rs 35,000 crore from the auctions. Last year, when announcing the auctions, Mr Raja had said the Centre would get a minimum of Rs 40,000 crore. 
    In July, the government had decided to refer the issue to an EGoM despite the agreement between the two ministers to double the reserve price to Rs 4,040 crore and allow up to seven players, including BSNL & MTNL, per circle. This was because the new UPA government was keen to avoid any further controversy on the auction of frequencies for 3G and WiMAX. 
    Mr Raja denied that the Rs 3,500 crore base price was a compromise to bury the differences between the telecom and finance ministries. 
    "The department of telecom had presented three options to the EGoM. The EGoM only finalised the option it deemed best," he observed. 
COAI, AUSPI slam move 
The three options were to retain the reserve price at Rs 2,020 crore as recommended by regulator Trai, doubling it to Rs 4,040 crore as demanded by the finance minister, or agreeing to a figure of Rs 3,500 crore. 
    BSNL and MTNL have already been given 3G airwaves and they have launched services on this platform. However, they will have to match the price offered by the highest bidder in the upcoming auctions. 
    Industry associations representing operators on both the CDMA and GSM technology platforms slammed the government over the reserve price as well as the number of slots. 
    "Trai had initially recommended that the base price for 3G spectrum should be Rs 1,010 crore. This was then doubled to Rs 2,020 crore. But the new reserve price of Rs 3,500 crore is far too high and does not make the 3G business for operators viable," said director-general of the Cellular Operators Association of India TV Ramachandran. COAI is the lobby group representing GSM operators. 
    Mr Ramachandran said COAI was "extremely disappointed by the government's move to fix the base price for WiMAX spectrum at Rs 1,750 crore". 
    "It is internationally accepted and proved that WiMAX is a competing technology to 3G and can be used for providing both voice and data," he said. COAI also said the government should not favour one platform over the other by allowing different base prices. 
    On the other hand, the Association of Unified Service Providers of India, the body representing CDMA players, alleged that the government was "creating an artificial scarcity of 3G spectrum". 
    "In most circles, there is enough 3G airwaves for 8-12 players. By restricting the auctions to four private operators, the government is hoarding this scarce resource," pointed out SC Khanna, secretarygeneral of AUSPI. He warned that India could end up like Europe, where operators bid huge amounts for 3G spectrum but are unable to pay up, forcing many of them into the red. 
    But Mr Raja defended the decision of the EGoM. 
    "Trai had recommended that the auctions be limited to five players and we adhered to that," he said. He added that it was vital for the base price for WiMAX spectrum to be lower than that of 3G as these airwaves would be used to provide wireless broadband to rural India. 
    Despite being critical of the government, all telcos said they would bid for 3G spectrum.



Govt expands recession cover

 New Delhi: In a bid to give sagging exports a fillip, the government on Thursday decided to extend the Duty Entitlement Passbook Scheme (DEPB) till December 31, 2010. Exporters get credit against taxes paid on input and other benefits under DEPB Scheme. 

    The other booster schemes, which were announced earlier, will also continue. Some of the such schemes are 2 percentage points interest subvention on pre-shipment credit and enhanced insurance coverage through Export Credit Guarantee Corporation (ECGC). These measures will now continue till March 31, 2010. 
    ECGC provides a range of credit risks insurance cover to exporters against loss in exports of goods and services. It also provides guarantees to banks and financial institutions to enable exporters to obtain better facilities from them. 
    The government also proposed to relax the Export Promotion Capital Goods (EPCG) Scheme to facilitate export of second hand plant and machinery. "Export obligation on import of spares, moulds and others under the EPCG scheme has been reduced to 
50% of the normal specific export obligation,'' the trade policy said. In the foreign trade policy, the government has also allowed exporters to import capital goods at 0% duty as against the existing 3%. 
    As the existing export markets are reeling under recession, the government has decided to expand its Focus Markets Scheme (FMS). It has in
cluded 26 markets —16 in Latin America and 10 in Africa and CIS countries —in the list of FMS. The policy has also increased the support extended to exporters from 2.5% to 3% of the value of the exports if they cater to these markets, which include South Africa, Nigeria, Tanzania and Brazil. 
    Besides this, the government has also increased the incentives on the focus products from 1.25% to 2%. Commerce minister Anand Sharma said that labour incentive sectors like leather and garments have included in the focus products scheme. 
    Exporters and industry bodies like Fieo, CII, Ficci and Assocham welcomed the policy. As the exporters are finding it difficult to fund imports to do value addition and then exports, the government announced step like dollar credit to exporters by banks. This will be overseen by a high level committee, comprising finance secretary, commerce secretary and the Indian Banks Association. 
    The government would also take special measures to reduce the cost of transactions and to simplify the procedure. Sharma said that the ministry would promote the use of electronic system. 

Arresting The Slowdown 

26 new markets — 16 in Latin America and 10 in Africa and CIS countries — have been added under Focus Market Scheme (FMS). Incentive to markets under FMS has been increased to 3% from 2.5% of value of exports (exporters will get back this amount in cash) 


• Incentive on products under FMS has been increased to 2% from 1.25% of value of exports 

• Two percentage point 
interest subvention on export finance till March 2010 

• Banks to extend dollar credit to exporters 

• EoUs can import capital goods at zero duty 

• EoUs can sell 90% of the output in domestic market instead of 75%. But over a period of time 50% of the production has to be exported 


• DEPB scheme is extended till December 31, 2010 

• Diamond bourse will be set up to make India a diamond international trading hub 

• Limit on value of goods carried for participation in overseas exhibition has been raised to $5 million from $2 million. That on samples has been increased to $1 million from $0.1 million



Govt eyes $200bn exports for FY11

26 African, CIS & South American Countries Added To Focus Mkt Scheme

New Delhi: In order to bring the country's exports back on the growth path, the government on Thursday announced a number of measures, including tax sops, interest subvention and dollar credit for exporters. 

    To beat the recession in developed countries like the US and Europe, which has affected India's exports badly, the government, in its Foreign Trade Policy 2009-14, decided to add 26 additional countries in Africa, South America and CIS under the Focus Market Scheme (FMS). 
    Explaining the reason for falling exports, commerce and industry minister Anand Sharma, while unveiling the 
policy, said, "We cannot remain oblivious to declining demand in the developed world and we need to set in motion strategies and policy measures which will catalyse the growth of exports.'' 
    At present, exports to Europe, US and Japan amount to 36%, 18% and 16%, respectively, of India's total exports of $168 billion in 
2008-09. Due to the recession, exports have declined by almost 30% in the last 10 months. This has forced the government to revise its growth targets. Refusing to give any projection for 2009-10, Sharma said the country would achieve an export figure of $200 billion in 2010-11 as against $168 billion in 2008-09. Recovery is on the way as industry has achieved a 7% growth in July, he added. 
    Sharma said the short term objective of the policy was to arrest and reverse the declining trend of exports and to provide additional support especially to sectors hit badly by recession in the developed world. 
    He said the government will review its policy after 
two years and will take further measures according to the situation. However, he said, "By 2014, we expect to double India's exports of goods and services. In the last three years of the fiveyear policy, India will achieve a growth figure of 25% annually.'' 
    The long-term policy objective, he said, would be to double India's share in global trade by 2020. India had a 1.64% share in global trade in 2008. However, this is a climbdown from the earlier projection. 
    Sharma's predecessor Kamal Nath had announced that India will grab 5% share of global trade by 2020. Sharma said the revised target is more realistic in the changed circumstances.



Wednesday, August 26, 2009

Big IT bags $1.5-b BP contract


The Five-Year Outsourcing Deal May Fetch Revenues Of Over $100 M Each

INDIA'S top three software exporters TCS, Infosys Technologies and Wipro, along with MNC rival IBM, on Wednesday, announced that they have won new outsourcing contracts from British Petroleum (BP) to be delivered over the next five years. The deal is valued at around $1.5 billion. 

    As reported by ET last month, India's offshore outsourcing firms including TCS, Infosys, Wipro and Mahindra Satyam had locked horns with MNC rivals IBM and Accenture for up to $1-billion outsourcing contracts to be awarded in August by BP. 
    While the companies did not 
disclose the value of the new contracts, experts tracking the sector said Indian suppliers are expected to earn revenues in excess of $100 million each over the next few years from BP. "BP expects to save up to $500 million from these outsourcing contracts," a UK-based outsourcing expert told ET on conditions of anonymity. 
    BP, which used to outsource a majority of its application development, system integration and infrastructure management projects to almost 30 suppliers, including IBM, Accenture, Mahindra Satyam and Infosys, wanted to bring down its IT costs by up to 30% by working with fewer vendors handling more work at lower rates.



Fund-raising through ADRs may get easier

India Inc Could Get Access To Level-1 ADRs

THE government is examining a proposal that seeks to relax rules governing American Depository Receipts (ADRs) to allow Indian companies access the US market through more liberal offerings. 

    The finance ministry is deliberating on whether Indian companies should be allowed to issue level-1 ADRs, which need very few regulatory disclosures, an official with the ministry said, requesting anonymity. 
    Level-1 issues do not involve issue of fresh capital, but allow overseas companies to diversify their investor base and build a presence in the US market that may help them raise capital later. 
    India currently allows only level-3 ADR/GDRs, which involve capital raising and listing on regular overseas exchanges and greater disclosure levels, including costly compliance with US laws. 
    Level-I ADRs, the most liberal form of depository receipts, allow non-US companies to access sophisticated investors in the US 
market with minimal reporting requirements from the US Securities and Exchange Commission (SEC). 
    Companies issuing level-1 ADRs are listed only on the over-the-counter (OTC) exchanges in the US and do not have to comply with the rigorous US accounting standards, US GAAP. A majority of ADRs currently being traded are issued through level-1 programmes. 
    The official said policy experts are divided on whether such ADRs should be allowed at present. Incidentally, a high-powered committee chaired by Planning Commission member Saumitra Chaudhuri, who is also a member of the Prime Minister's Economic Advisory Council, set up to look into the existing norms governing ADR/GDR issues had opined that the time was not ripe to allow level-1 ADRs. 
    The view against allowing such ADRs has been that it allows the export of Indian equities abroad and does not generate any value for the country.
Policymakers opposed ADR plan 
THE idea behind allowing Indian companies access to ADR/GDR issuance was to support inward flow of capital into the country, and with level-1 not really fulfilling this objective, some policymakers have strong reservations against such a change. 
    The alternate view is that since the overall regime is inclined towards further liberalisation, it may be time to do away with this restriction. This kind of ADR/GDR issues, which do not entail any inflow of capital into the country, allow companies to build their brand before making an actual float on the stock exchanges to raise capital. "The government should selectively al
low index companies, Sensex or Nifty, the option of registering under level-1 and level-2. Under market economy, this option should be available to companies. This should be done keeping in mind the regulator's role of deepening and broadening the capital market," said Sanjay Hegde, executive director, PwC. Bank of New York and some others have been lobbying in India for this policy change and had even made a presentation before the highpowered committee. Some of the other key recommendations made by the committee such as relaxation in the pricing norms for ADR/GDR issuance have already been implemented by the government.



CURRENCY SPOILER

Stronger rand may see Bharti shell out more

Mohit Bhalla & George Smith Alexander ET NOW 


BHARTI Airtel will have to pay at least $413 million (Rs 2,000 crore) more than originally presumed to shareholders of MTN if a merger deal fructifies because of the South African currency's appreciation against the dollar. 
    Hopes that the largest mobile phone firms in India and Africa will merge and the anticipated inflow of rand has boosted the value of the South African currency against the dollar by over 6% in recent weeks. 
    When the two companies announced merger talks in May, the total dollar outgo at that time was estimated at around $6.94 billion, with Bharti paying 86 rand for every MTN share. But with the South African curren
cy strengthening, this amount has now risen to $7.38 billion. 
    The movement in the currency markets has prompted both companies to consider settling the transaction in dollars instead of in the Indian and South African currencies, people close to the dealmaking said. 
    The deal's contours, unveiled in May, involve a complex structure in which both firms would pay cash and 
equity for stakes in each other, the end result of which will see Bharti Airtel getting a 49% stake in MTN and the South African telco and its shareholders getting a 36% economic interest in Bharti. 
    Bharti was supposed to get $2.9 billion in cash from MTN. Due to the rupee's depreciation against the dollar in the past few weeks, the amount paid in the Indian currency will go up by Rs 351 crore. A Bharti representative declined to comment. 
BANKERS SHORTLISTED 
Bharti has shortlisted eight banks to finance the likely transaction, advising them to submit final bids at an interest rate of 315 basis points above the benchmark London interbank offer rate (Libor), or 3.15%, bankers aware of the development said. The six-month Libor is 0.83%. 
    ANZ, Barclays, StanChart, Citi, BNP Paribas, Bank of Tokyo Mitsubishi and UFJ Financial have been chosen for the funding, raising hopes that the nearly $23 billion transaction, the biggest cross-border M&A deal by an Indian company, was inching towards a successful outcome. 
    Bharti and MTN have extended exclusive merger talks twice already as they grapple with issues surrounding the pricing of the deal and the structure of the alliance. A successful transaction will create a global telecom powerhouse with more than 200 million subscribers and revenues of over $20 billion. 
Barclays named joint advisor 
THE BANKS have been advised to submit bids for loans of $300-500 million each. In an email on Tuesday, Bharti also said Barclays has been appointed as joint M&A Advisor along with the lead financial advisor, Standard Chartered Bank. The banks have been informed that they will get an opportunity to participate in all deal-related incidental business arising from this transaction. Senior bank executives said this will be a major driving factor for banks to finance the deal at the lowest cost to Bharti. The overseas loan has been broken
into different tenures of two, three, four and five years. The blended pricing, which includes the fees, has been fixed by the corporate at 315 basis points. The dollar funding has been fixed at $3-3.5 billion while the rupee funding will be $1.5-2 billion. Bankers, however, added that as of now, the total debt is still being pegged at $5 billion. For the rupee loan, the funding of which is being led by State Bank of India, Bharti is said to have received one of the best rates in recent times, 8.5%. Bharti is expected to finalise the terms of the funding pacts with the banks in a couple of days.





Tuesday, August 25, 2009

KG gas row: Govt to adopt softer tone in apex court

New Delhi: The Centre on Tuesday decided to shed much of its belligerence in the Supreme Court in the RILRNRL battle over sharing of the KG basin gas and instead focus only on the core issue of the production sharing contract (PSC) between it and RIL and the pricing of the gas. 

    It has decided to file a clarificatory affidavit in the SC on Wednesday in its independent appeal in the row between Mukesh Ambani's RIL and Anil Ambani's RNRL, sources in the petroleum ministry said. 
    The move comes after the ministry realised that it had made unneces
sary statements like "the Memorandum of Understanding and family agreement between Mukesh's RIL and Anil's RNRL are null and void in the face of the enormous national interest involved in the distribution of natural gas''. It has also decided not to lay stress on its earlier statement that "RIL and RNRL have appropriated, through the MoU, in a surreptitious and unauthorised manner the entire gas, treating the same as their personal and family property''. 
    Importantly, however, it has decided to stick to its core argument—the issues relating to sharing of gas between the government and RIL and that the pricing would be governed by the PSC and the decisions of the empowered group of ministers (EGoM). 
No interest in upsetting '05 Ambani deal: Govt to tell SC 
New Delhi: In the clarificatory affidavit it is planning to file in the Supreme Court on the KG gas row on Wednesday, the petroleum ministry will attempt to set right a technical oversight made in the appeal filed on July 18. 
    The Centre had forgotten to seek leave of the SC to file the special leave petition (SLP) which was necessary as it was not a party before the Bombay high court but only an intervener. Besides, it will make it clear in the affidavit that it was not interested in "upsetting'' the 2005 family agreement between the Ambani brothers or the MoU between RIL and RNRL. 
    In its plea filed on July 18, the Centre had sought the quashing of the Bombay HC's June 15 judgment. It had said that natural gas was meant for industrialisation of the entire country and not for the individual gains of the ventures owned by the Ambanis. "The national economy cannot be allowed to be held hostage by the Ambanis,'' it had added. 
    In its affidavit before the SC on July 17, RIL had virtually supported the government's stand that there could not be any bilateral agreement between RIL and RNRL for supply of gas as it was subject to the decision of the Centre. However, RNRL had contested this stand and sought the implementation of the Bombay HC order upholding the family agreement on sharing of gas.





Monday, August 24, 2009

Mid-size cos steal the show in Q1


SALES, NET PROFIT INCREASE AS RAW MATERIAL PRICES & OPERATING COSTS DIP

MID-SIZE companies with revenues between Rs 500 crore and Rs 2,000 crore outperformed giant corporations and small firms in the first quarter of this fiscal helped by a fall in raw material prices and other operating costs. Combined sales of these 113 mid-size companies grew 8% over the yearago period while their net profit increased by 12%, according to an ETIG study that analysed financial results of companies for the quarter ended June. They saw the biggest turnaround, reporting double-digit profit growth, in sharp contrast with the previous two quarters when their aggregate profits fell by an average 24%. 

    The earnings performance of this group was boosted by Shree Cement, Cadila, Century Textiles, Binani Cement and Siemens. Revenue growth in this set was led by ITI, Lanco Infratech and Bharat Electronics, among others. Shree Cement saw a more than two-fold increase in its net profit at Rs 291.13 crore during the first quarter, driven by high volume growth and reduced operating expenses. It also posted a 50% increase in turnover to Rs 922.95 crore. 
    The major corporations the mid-size companies outperformed comprised those having quarterly revenues of over Rs 2,000 crore. This group of 40 firms such as Reliance Industries, NTPC, SAIL, Infosys and Bharti Airtel reported a revenue growth of 1.1% and profit growth of 6%. 
    The performance of giant corporations was weighed 
down by Reliance Industries. If we exclude RIL, which accounts for a seventh of the total sales of the giants, growth in the group's revenues and profit improves to about 8%. The country's largest private sector company by standalone revenues saw its revenues and profit shrink due to a fall in refining margins. 
    Smaller companies, which form the bulk of 
the sample, clubbed into three sets having quarterly revenues of Rs 100-500 crore, Rs 50-100 crore and Rs 5-50 crore, reported a decline in profits. 
    The smaller the size of the firms, higher the decline in earnings and sales with the smallest group seeing profits halve compared to same period last year. They also saw a decline in both demand and earnings as the economy is still recovering from a downturn. "The smaller firms seem to have suffered damage to their business model during the third quarter of FY09, leading to significant erosion in profits. It is difficult to foresee a recovery for them for now, which will come only after the economy gains momentum," said Manish Sonthalia, portfolio manager at brokerage outfit Motilal Oswal. 
    The overall set of 3,700 companies together reported 
1.3% revenue increase and 1.8% profit growth over the first quarter of the previous year. The analysis excludes banks and other lending institutions besides public sector oil companies. 
    All groups of companies reported lower year-on-year sales growth compared with the quarter ended March 2009, showing demand is yet to recover fully, but prof
itability has improved for all of them. 
    The performance for the June quarter had definite positive surprises, but profits may remain at the existing level for a while due to deficit in monsoon, said Anand Rathi Securities CEO, institutional equities, Ratnesh Kumar. "Companies in sectors such as consumer goods, automobiles and cement, which are 
linked to the rural economy, may be under pressure. Further earnings upgrade may happen only when monsoon deficiency is fully digested in the next 2-3 months," he said. 
    The smaller firms were hit by a nearly 20% increase in interest burden and 11% rise in provisions for depreciation. These two items take away nearly two-thirds of operating profits for the group, as against less than half in the same quarter a year ago. 
    The only silver lining is that the percentage of decline in profits is much lower than the previous two quarters. For instance, profits for the smallest set of 1,100 companies with revenues of Rs 5-50 crore, had shrunk by an average of 75% in the previous two quarters as compared with 50% last quarter.



 

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