NEW DELHI: While India Inc has recorded a broad-based uptick in domestic demand during the second quarter, a host of factors have resulted in companies seeing little improvement in profitability. In fact, analyses of companies that have declared their second quarter financial results so far show that profit growth still languishes in the single digits for most sectors, even though revenues have grown faster than 20 per cent.
An analysis of earnings for the quarter ended September 30 of over 400 listed firms show that for manufacturing sectors like Automobiles, rising input costs have seen profit margins highly constrained — especially since manufacturers say they have not able to pass along any significant portion of these costs to customers through price hikes. While revenues rose by an average of around 21 per cent for the companies in the sample, net profit growth stands at just around 8 per cent.
Top automobile firms, for instance, have seen both operating and net profit growth slow down during the quarter. While market-leader Maruti Suzuki saw revenues grow by 3.1 per cent, net profit fell by 9.8 per cent. Other major Indian auto firms have reported even poorer numbers, led by Tata Motors, whose troubles in the China market saw it post a Rs 1,009 crore net loss. Others like Hero Motocorp (-3.4 per cent), Force Motors (-4.9 per cent) and TVS Motor Company (-0.9 per cent) have seen earnings fall year-on-year.
As for the financial services space, while non-banking finance companies (NBFCs) have done relatively better than their peers and private banks have managed to stabilise profits, public sector banks have taken a beating due to unrelenting pressure from bad loans and consequent provisioning requirements.
India’s largest banker SBI managed to post a net profit for the first time in a year, but the number was still a 40 per cent fall from last year’s bottomline. Meanwhile, scam-hit Punjab National Bank posted another whopping net loss (Rs 4,532 crore), as did Syndicate Bank (Rs 1,543 crore), but HDFC Bank (20.6 per cent) and Axis Bank (82.6 per cent) did much better.
Intense competition and ongoing consolidation has also depressed sectors like Aviation and Telecom. Bharti Airtel, still the market leader despite a steadily encroaching Reliance Jio, saw net profit fall by over 66 per cent. In aviation, IndiGo’s operator Interglobe Aviation posted a second consecutive quarterly net loss, while other aviation companies are also expected to take similar hits.
The FMCG sector has seen profits improve, but the pace remains muted. The bright spot so far remains the Information Technology space, which has also received a leg up from currency movements in the quarter, with the sector aggregate profit growth standing at around 14 per cent, with revenues up 16 per cent. Infosys (10.3 per cent), TCS (22.7 per cent) and Tech Mahindra (27.4 per cent) have regained double digit earnings growth during the quarter.
Going forward, analysts say that while headwinds like currency depreciation and fuel prices have become more favourable over the past few weeks, a return to double-digit earnings growth for India Inc this fiscal appears unlikely now.
21% was average rise in revenue of companies sampled, but their net profit growth stood at just around 8%