Higher costs, economic recovery sputters lessen corporate earnings

In 1998/99 earnings fell 4.5 per cent. Sales growth is expected to rise by an average 10 per cent, the latest poll of 13 securities houses showed.Analysts attributed their revisions to higher input costs for items like fuel, and the failure of consumer demand to kick-start a broader recovery.

India raised diesel prices by more than a third in October after rising global oil prices. Rajesh Jain, director at Pranav Securities, said rising commodity prices had flowed through to higher prices at the factory gate faster than expected. "There is an average input cost push of 5-15 per cent andthere are additional fuel and transport charges," he said.

Analysts said earlier estimates had assumed a stronger pick-up in the economy. "We are seeing an economic recovery driven by consumer demand. It is only when capital expenditure rises and institutional investment picks up that the real recovery can be said to have started," Jain said.

Cement and metals are not showing good growth it has definitely slowed down in comparison to the first half of the year," said Ketan Desai, head of research at Nucleus Securities.

Analysts said demand had risen in 1999/00 but was insufficient to enable these firms to raise prices. Gujarat Ambuja Cements, India’s most profitable cement firm, said on Tuesday its dispatches had dropped in December, after rising for most of the year.

"Steel and aluminium have also been unable to deliver the punch expected from them," he said. Associated Cement Companies’ net profit is expected to drop 12 per cent compared with the September projection of a rise of 60 per cent.Analysts said the company had been hit by higher freight costs and lower prices.

Bajaj Auto’s net profit is expected to fall by an average three per cent, versus an earlier forecast of flat growth. Mahanagar Telephone Nigam Ltd profit is forecast to fall two per cent versus 15 per cent growth. Profit forecasts for the banking sector have also been pruned amid tighter provisioning norms.

State Bank of India’s net profit is forecast to rise by an average 59 per cent versus 83 per cent earlier. The automobile sector has seen firms with commercial vehicles and tractors showing good growth.

But auto major Tata Engineering and Locomotive Company, which in September was forecast net profit growth of 50 per cent, is now expected to post a fall in net profit by an average 86 per cent.

"TELCO is doing extremely well in the truck sector, but they have the car project which is pulling down the overall profitability," Ramdeo Agarwal, director of Inquire Indian Equity Research told ReutersTelevision.

"But the way car demand is galloping in India, we can see more profitability in 2000/01."