Q3 show — Bottomlines surge yet again

The sharp rise in profits and sales turnover has revealed that the current fiscal will be a strong turnaround story for the corporate sector, ending a decade of restructuring and consolidation. This is also a strong signal that the Indian industry has successfully survived the first phase of the reform process.

While a majority of companies have managed to beat the winds of recession, there were some hiccups as well. Even as companies like Reliance Industries, Wipro and Gujarat Ambuja Cements seta scorching pace for others in the field, many like Larsen & Toubro, Telco and cement giant ACC disappointed the stock markets and investors. Two Tata companies managed to post higher profits by selling assets.

A study by a leading financial daily (Business Standard) has indicated that 210 companies have showed a 43.9 per cent rise in profits for the third quarter (October-December) of 1999-2000. It’s not only bottomlines, even sales turnover of these companies has increased by 20.6 per cent. Companies which announced the third quarter results are optimistic about continuing this show in the fourth quarter as well.

A good beginning indeed for Corporate India in the new millennium. It has also given a new fire to the mergers and acquisitions (M&A) process in the country.

The third quarter show also confirms the survey conducted by the Confederation of Indian Industry (CII), the premier industry chamber in the country. The CII survey for the period April-November 1999 indicated that passenger cars (44 percent), medium and heavy commercial vehicles (68 per cent), personal computers (40 per cent), CTV (25 per cent), audio products (25 per cent), sugar (53.5 per cent) and vanaspati (28 per cent) recorded excellent growth of over 20 per cent during the period.

This was supported by another study done by the government. The index of industrial production (IIP) for April-November, 1999 stood higher at 6.4 per cent as against 3.6 per cent in the same period a year ago.

Thanks to higher volume growth, Reliance Industries, the largest private sector company in India, has surprised analysts by clocking a 56 per cent rise in net profit to Rs 627 crore for the third quarter. “`Sales volume growth contributed 14 per cent. The impact of this volume growth was further supported by an 11 per cent increase in production prices,” said Anil D Ambani, Managing Direrctor, RIL. “With polypropylene and paraxylene plants commissioned at Jamnagar Petrochemical complex, interest expense has increased 29 per cent to Rs 699crore. This has also resulted in a 16 per cent increase in depreciation to Rs 705 crore,” Ambani added.

It was the infotech sector which again overshadowed others, but these were largely in line with expectations. Over a dozen software firms reported average net profit growth of 75 per cent and sales growth of 60 per cent, setting the stock market bulls on fire. Software blue chip Infosys Technologies the first Indian company to list on the US Nasdaq announced an 84 per cent jump in net profit and a 67 per cent surge in sales while NIIT Limited’s profits more than doubled and Satyam Computer Services Limited’s profit grew 83 per cent. Wipro’s profit zoomed by over 215 per cent to Rs 84 crore.

Grasim which has interests in cement and fibre displayed a 104 per cent rise in profit. While cement giant ACC plunged into huge losses in the last quarter, Gujarat Ambuja Cements (GACL) has clocked a 90 per cent rise in net profit to Rs 55 crore during the second quarter ended December 1999 against Rs 29 crore inthe corresponding period of last fiscal. “It’s surprising to note that ACC has made a loss of Rs 19.79 crore for the third quarter but GACL made 90 per cent higher profit. How can one say that the cement industry is doing badly,” asks an analyst with a brokerage.

Tata Steel has posted a hefty rise in its net profit for the third quarter at Rs 146.18 crore as compared with Rs 16.21 crore in the same period of last year. However, its profit was boosted by the sale of its cement division to Lafarge of France. Tata Chemicals, another group firm, reported a higher net profit of Rs 111.82 crore as against Rs 29.30 crore in the third quarter. Here again, profit on the sale of shares worth Rs 78.99 crore helped Tata Chemicals show higher profits.

Similarly, private banks like HDFC Bank (54.87 per cent growth in profits), ICICI Bank (101.28 per cent) and IDBI Bank (113 per cent) have also done well. Despite a huge level of non-performing assets (NPAs), State Bank also surprised investors by clocking 51 per centprofit growth. Indian arms of multinational firms are also doing well. The net profit of Hoechst Marion rose by 281.8 per cent to Rs 4.20 crore during Oct-Dec 1999.

Larsen & Toubro was a big disappointment as its net profit plunged to Rs 19.34 crore from Rs 63.56 crore. This was largely due to an almost three-fold increase in interest costs. Undeterred by this, L&T is going ahead with a major restructuring proposal. “The core business will be construction, E&C projects, heavy engineering, electrical and electronics.

The thrust areas will be IT & communication and cement,” said L&T MD and CEO AM Naik. Another company which disappointed investors was Telco. With its dream `Indica’ project acting as a drag, the Telco flagship suffered a loss of Rs 60 crore in the last three months. Essar Steel also made a loss of Rs 116 crore. Punters, however, are still happy as these are stray cases.

And the barometer of the economy the Sensex is still above the 5,400 level. The recovery is now visible across thespectrum. “During the first nine months of the fiscal, growth in cement production was up by 17.5 per cent while despatches grew by 17 per cent. Finished steel production has risen by 8 per cent in April-November 199 as against 4.4 per cent in the same period of last year. Similarly aluminium production rose by 17 per cent as against a decline of 4.4 per cent previously,” said a study by Duff & Phelps India.

With corporates doing well, analysts are now predicting higher tax inflow for the government. Total tax collections in April-December rose to Rs 1,13,509 crore from Rs 97,053 crore in the same period of last year. This will help the Indian economy to sustain an average 6.0-7.5 per cent GDP growth per annum in the next five years, making it one of the fastest growing markets in the world. Clearly India Inc is getting out of problems created by demand recession and falling margins. If the government takes supportive measures in the next budget, one can expect a total recovery in its fortunes in the newmillennium. There is no better start for India than this.