Even as revival in earnings for India Inc is being termed as the factor that will lead the turnaround of stock markets going forward, the quarter ended December 2015 seems to be another quarter lost on that account.
A look into the standalone results of the first 60 companies (excluding banks, and are part of BSE 500 index) that announced their results till Friday, shows that revenue growth for the group of companies remained elusive and contracted by 9 per cent on account of slowdown in demand, low capacity utilisation and fall in commodity prices. The group of companies however, witnessed a growth of 6.6 per cent in the net profit on account of a sharp decline in the raw material expenditure.
The aggregate profit for the 60 companies in the analysis, rose from Rs 27,607 crore in December 2014 to Rs 29,428 crore , thereby witnessing a growth of 6.6 per cent. This came even as the net sales for the group of companies fell 9 per cent from Rs 1,99,837 crore to Rs 1,81,920 crore during the same period.
Raw material expenditure for the companies fell almost 30 per cent during the same period as it came down from 87,781 crore in December 2014 to Rs 61,506 crore in December 2015.
The India Inc story has been the same over the last few quarters as the companies have managed to post profits only on account of falling input cost and stable interest expenditure. Softening crude oil prices and other commodities, have been driving profit growth for the companies. The weakness in crude prices gained momentum over the last couple of weeks following the slowdown concerns in China and US deciding to lift sanctions imposed on Iran.
The companies also seem to have benefitted marginally from RBI’s decision to cut repo rate (the rate at which RBI lends to commercial banks) by 125 basis points in the calendar 2015 as the group of 60 companies saw a marginal rise of 1 per cent in their aggregate interest expenditure during the quarter.
Reliance Industries posted a very strong profit growth for the quarter on account of rise in its gross refining margin that stood at a seven-year high of $11.5 per bbl. Its net profit jumped by 41.9 per cent to Rs 7,218 crore over the same quarter last year, even as the revenue declined by 26 per cent. For RIL both raw material and interest expenditure fell by 39 and 31 per cent respectively.
IT majors TCS and Infosys reported strong revenue growth of 14 per cent and 11 per cent respectively, however, their net profits rose by only 4.3 and 4.2 per cent respectively.
Analysts say that it may take some time for earnings to recover.
A report from Kotak Institutional equities last week said, “The market could see another 5-7 per cent correction as a result of earnings cuts in the ongoing results season and de-rating of certain expensive stocks. Domestic industrial recovery is still distant and global commodity prices very weak, which pose downside risks to our ever-declining earnings estimates in certain sectors.”