Mumbai is back

Sure, the fury of nature has damaged plants of top corporates like Reliance Industries, Bombay Dyeing, Mahindra 038; Mahindra and Cipla. But thanks to a confidence that can only come from excellent performances, India Inc is sailing ahead.

The economic loss of last week8217;s flood is estimated between Rs 5,000 and Rs 10,000 crore. But there8217;s no sign of any nervousness among corporate honchos, executives and workforce. 8216;8216;Industry is doing well. The financial system didn8217;t collapse after last week8217;s floods,8217;8217; said Hemendra Kothari, chairman of DSP Merrill Lynch.

Not even on Dalal Street. The Sensex 8212; the barometer of the financial health of the country 8212; is scaling new heights every day. The main factor propelling the bull run is excellent corporate performances. This, in turn, has led to the revival of the primary market with a host of good quality issues.

This is also instrumental in pushing up the index for industrial production IIP to over 10 per cent last week. It also pushed up mergers 038; acquisitions M038;A. One can now see more and more Indian companies making big acquisitions abroad.

8216;8216;The growth rate of India Inc seen in the first quarter of the current fiscal is what we have been witnessing over the last two to three years. I think India Inc has reached a sustainable model in its business and growth,8217;8217; says Surjit Bhalla, MD, Oxus Research 038; Investments.

And all this has happened despite the drastic reduction in customs duties in the last few years, tough competition from China, steep rise in crude oil prices and the vagaries of nature.

The numbers buttress the story. Sales of 942 top companies shot up by 18 per cent during the first quarter April-June of fiscal 2005-06. Net profits of these companies soared by 23.87 per cent during the quarter. In fact, the corporate sector has been showing 20-25 per cent growth in the last six or seven quarters.

According to fund managers tracking corporate performance, many factors like low input costs, low level of interest rates, restructuring and cost-cutting helped many companies to increase their toplines and bottomlines in the June quarter, like in the previous quarters.

8216;8216;My expectation is that the strong growth in earnings will continue in the current quarter. The rise in input costs and reduced margins were passed on to the customers in the last quarter,8217;8217; said R Ravimohan, MD, Crisil. Though the US has increased rates over the last several quarters, interest rates have not gone up in India so far. The stable rate regime has come as a bonanza for capital-intensive companies.

IT was not a smooth ride for India Inc all the way though. If the China factor played a major role in the steel and textile sectors, oil was hit by the government8217;s reluctance to hike product prices despite the steep jump in crude oil prices. The pharma sector managed to keep up a good show despite the perils of the patents regime. But cement, hotels, automobiles and petrochemicals put up a good performance.

8216;8216;Steel, textile and some other sectors have seen increased competition from China. The integrated players in the sector were better off compared to stand alone players in all the sectors. We will see a realistic growth rate of around 10 per cent in profitability overall in the coming days,8217;8217; said Arvind Parikh, director finance, Jindal Stainless. Most steel companies8212; even those reeling under huge losses till two years ago8212;have reported a good jump in profits.

A major bonanza is interest cost, which has gone down from 11-12 per cent a few years ago to 7-8 per cent. This is definitely showing in the profitability of the industry. 8216;8216;Lower cost and lean-and-mean is now the motto for India Inc. It8217;s a pattern which is going to sustain for some time,8217;8217; says Bhalla of Oxus.

Companies are gearing up to cut costs further and restructure operations. Tata Motors, which beat estimates with a 22 per cent rise in profit for the last quarter, is a classic example of product innovation and restructuring. 8216;8216;We8217;ve targeted a cost reduction of Rs 1,000 crore this year in our operations and we are on track,8217;8217; said Pravin Kadla, executive director, Tata Motors.

BUT there are exceptions too. The bad news came mainly from the oil sector. With the government not allowing a required rise in product prices, petroleum companies ended up with huge losses. Indian Oil Corp IOC, India8217;s largest company in terms of sales, suffered a loss of Rs 54 crore as against a profit Rs 1,472 crore in the same quarter of previous year.

8216;8216;The only way out of this mess is to increase retail prices. We have a situation where the stand-alone refineries are raking in profit and at the same time, marketing firms are suffering losses,8217;8217; said Sarthak Behuria, chairman and MD, Indian Oil Corporation.

Economists say that a 25 per cent plus growth in corporate profits is needed to take India8217;s growth rate to the eight per cent plus level. When the growth is sustained over several quarters, changes will be perceptible and widespread.

Of course, there are several factors like the monsoon and oil prices that are beyond the control of corporate honchos and government mandarins. But the good news from the corporate sector after the recent floods in Mumbai show that Indian industry is prepared for any eventuality. The challenges are formidable. But India Inc is prepared.

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