Its been a poor start to the earnings season with the first lot of numbers showing companies are struggling to grow their top line. A sterling set of numbers from Tata Consultancy Services (TCS) revenues up 21% on an annual basis notwithstanding,most manufacturing firms are finding the going tough.
Some like Ashok Leyland are reeling in a sluggish economy sales for the CV manufacturer fell 22% year-on-year as it reported a loss of R141.8 crore,not anticipated despite an annualised volume drop of 21% during the quarter. The slowdown is clearly crimping cash flows.
At Oberoi Realty,for instance,collections from ongoing projects and rental incomes in the first quarter of the fiscal were 40% lower than the average quarterly run-rate while cash flows from operations were negative.
The commentary from banks has been circumspect,suggesting demand for credit might be muted in the months ahead. While HDFC Bank believes that loan growth for the sector this year could be just about 13-14%,Kotak Mahindra has pruned its loan growth guidance to 15%.
There has been some deterioration,albeit marginal,in the asset quality of the few private banks that have announced their results for the first quarter. At Axis Bank,for example,slippages and fresh restructuring stood at 1.4% of loans each,and the gradual increase in impaired assets in absolute terms appears to be emerging primarily from the corporate portfolio.
For a clutch of 93 companies (excluding banks and financials),net sales for the three months to June have been flat. Sales at Reliance Industries fell by close to 5% y-o-y while at Bajaj Auto they were flat at R5,087 crore. This a sharp deterioration over the previous three quarters when revenues rose by 2.9% y-o-y,10.5% y-o-y and 15.5% y-o-y,respectively.
A couple of smaller firms like Exide reported a better-than-expected 5% increase in the top line driven by better demand in the replacement market even as volumes in the OEM market dipped. Rallis too turned in a fairly good top line growth. At 49,000 square feet,however,Oberoi Realty wasnt able to sell the amount of space estimated.
Softening commodity prices have helped offset weak sales raw materials as a share of sales for the sample fell 363 basis points y-o-y thanks to which operating profit margins expanded by about 80 basis points. At 12.8%,however,the OPM is lower than than in earlier quarters,13% in both the fourth and third quarters of the previous fiscal. In a trend that indicates companies arent adding capacity,depreciation charges fell 6% y-o-y.
In the March quarter they had fallen 8% y-o-y and had been flat in the December 2012 quarter. If the net profit for the sample has grown 13% y-o-y,a better performance compared with recent quarters,its thanks to the sharp jump in other income of nearly 30% y-o-y.
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