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Sunday, October 25, 2009

400 NON-FINANCE FIRMS Q2 scorecard: Profits gallop, but sales limp

PROFITS of Indian companies grew at their fastest pace in a year during the three months ended September, 2009, but sales growth continued to decelerate for the fifth quarter in a row, a study by ET of the financial performance of 400 non-finance firms shows. 

Slower rise in raw material and wage costs as well as interest payments helped the 22% increase in corporate profits between June and September 2009, compared to the year-ago period. 
    The lower revenue growth is partly because of lower prices of commodities such as metals and slow revenue growth for software exporters hit by the economic slowdown in developed economies. Since sales realisations for 
many industrial product makers, metal traders such as MMTC and mining firms like Sesa Goa declined compared to last year, they have subdued overall revenue growth. But the results of consumer goods and services firms show domestic demand is robust. 
    The second consecutive quarter of profit growth for Indian companies comes after three straight quarters of shrinking profits and amidst increasing hope that an economic recovery is underway. The economic think-tank that ad
vises the prime minister said last week that India's GDP is expected to expand by 6.5% in the fiscal to March 2010, the most optimistic official estimate yet. Industrial output in August grew by 10.4%, the most in 22 months. 
    Many large consumer goods and service companies such as ITC, Asian Paints, Pantaloon Retail and top automakers Maruti Suzuki, Hero Honda and Bajaj Auto have reported double-digit growth in revenues and a sharp rise in profits. 

    Among the 50 companies in broader market index Nifty, the nine companies not part of the banking and finance sectors that have declared results reported an aggregate 15% growth in sales, 34% rise in operating profit and a 21% increase in net profit (after adjusting for extra ordinary income). The profit growth of these 
companies was a tad higher in the preceding two quarters (Q4 of 2009 and Q1 of 2010) but earnings growth in the July-September period was double that of Q2 and Q3 of 2009. 
    "The latest financial numbers have definitely brought more surprises than the previous 2-3 quarters," said Tarun Sisodia, head of research at brokerage house Anand Rathi Financial Services. 
IT cos report dip in revenue growth 
COMPANIES whose profits more than doubled during the quarter include Apollo Tyres, Welspun India, TVS Motor, Pidilite, Birla Corp, Century Textiles, Prism Cement, Sakthi Sugar, Sterlite Technologies and JK Paper. 
    Among the sectors, IT companies have reported a sharp deceleration in revenue growth over the previous year with Infosys and TCS both reporting single-digit growth in revenues for the quarter over the corresponding period last year. But with Infy raising its revenue guidance for the full year ending March 2010 and TCS reporting improving business sentiment in the key US market, the sector is likely to report better topline performance. 
    The auto sector has shown pretty strong numbers. A group of six large auto and auto ancillary firms Maruti Suzuki, Hero Honda, Bajaj Auto, Apollo Tyres, Bharat Forge and Exide Industries have together registered a 27% increase in net sales and 87% growth in net profit. 
    Banks such as HDFC Bank and Axis Bank have reported robust earnings, better than analysts' estimates. 
    UltraTech, which is set to emerge as the country's largest cement company after the merger of Grasim's cement business with itself, beat expectations and announced a 53% rise in net profit aided by higher sales and lower costs. The 106% growth in net profit of the second largest drugmaker by revenues, Dr Reddy's, also surpassed market expectations and JSW Steel, the third biggest domestic steel producer, also beat forecasts with strong profit growth backed by domestic metal demand. 
    But the capital goods and engi
neering sector has shown a mixed picture. While state-owned Bhel reported over 20% growth in revenue and profits, Larsen & Toubro is struggling with lower demand in some segments although earnings were boosted by one-time gains. 
    The textiles sector, too, presents a mixed picture. Raymond has seen a drop in revenues and profits while home textile firm Welspun, which depends on exports, benefited from currency movements and reported better numbers. Diversified firm Century Textiles' textiles division too reported higher revenues and cut losses by half over the year-ago period. 
    NTPC, which accounts for over a quarter of total electricity generated in the country, reported subdued earnings due to the much lower tax outgo last year which inflated profits in the quarter ended September 2008. 
    Within the sample of 400 companies, the proportion of profit-making companies has hit the highest level since Q3'08 (October-December 2007), the quarter preceding the stock market crash in January 2008. After hitting a low in Q3'09, when close to a third of the companies reported losses, the number of companies in the red almost halved to just one in six during the quarter ended September. 
    But a portfolio manager with a Mumbai-based brokerage house cautioned that the number of companies tweaking their books to show profits increases when stock markets are on the boil as some firms look to raise more funds. 
    "The same companies let go and drop the veil when valuations are down as there is no use windowdressing accounts," he said on condition of anonymity.



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