Tough going for companies

MUMBAI, July 29: The initial euphoria seems to be over. One after another companies are now coming out with poor results for the first qu...

MUMBAI, July 29: The initial euphoria seems to be over. One after another companies are now coming out with poor results for the first quarter of the fiscal year 1998-99. Indicating that all is not well on the economic front, even leading companies like Telco and Ashok Leyland have plunged into losses for the first time in recent years. Some of the leading business groups like the Tatas and the Thapars also find that bottom lines of their companies have eroded in the current year.

8220;The flow of corporate results was quite deceptive,8221; said an analyst. When software, pharma, consumer durables and petrochemicals companies announced better results for the first quarter in early June, the stock markets were jubilant. According to a study by a financial daily, 73 companies had together reported a 29 per cent rise in net profit for the period. The surge was led by software companies like Satyam Computer, Pentafour Software, NIIT and Infosys Technologies which came out out with 50 per cent plus growth in earnings.Infosys profit rose by nearly 250 per cent.

Pharma companies like Dr Reddy8217;s Lab, Glaxo and Ranbaxy came out with strong profit figures. 8220;I expect the pharma industry to grow by at leat 13 to 14 per cent. Our company will beat the industry8217;s growth to achieve a growth of 16 per cent,8221; said Ranbaxy chairman Parvinder Singh. Ranbaxy has registered a 18 per cent growth in net profit to Rs 36.7 crore in the first quarter. Two-wheeler makers like Hero Honda and TVS Suzuki came out with better sales and profits despite the recessionary trends in the automobile sector. In the consumer goods sector, BPL showed that chips are not really down by posting a 32 per cent rise in net profit.

Well, this was the initial trend. Companies, especially in core sectors like steel, cement, engineering, textiles and automobiles, are struggling to stay afloat if the performance in the first three months is any indication. 8220;The performance of Telco and Ashok Leyland was really bad. This shows the the direction of the Indianeconomy,8221; said an analyst with a leading foreign brokerage.

Telco and Ashok Leyland reported losses of Rs 35.63 crore and Rs 33.20 crore respectively. 8220;This was compounded by low freight rates and the fact that the railways had been doing well. It seems much longer than I thought. With basic infrastructure development yet to take off and freight rates under pressure, it was impossible to predict how long the slowdown would last. We don8217;t know if we have hit the bottom but it is certainly a long way down,8221; commented Telco chairman Ratan Tata at the shareholders8217; meeting.

Tata Steel showed a 60 per cent fall in net profit, indicating that steel sector is yet to come out of the woods. SAIL is also expected to go in a similar path. In the cement sector, ACC8217;s profit has fallen further from Rs 17.48 crore to Rs 8.48 crore. Tata Steel is now looking for buyers for its cement division. With major companies tottering in losses, ancillary units which are dependent on big companies for survival are also facinggusty wind of demand recession.

Even diversified companies are finding the going tough. Larsen amp; Toubro Ltd Lamp;T, which belongs to this category, has reported a lower net profit of Rs 72.05 crore in the first quarter of 1998-99 compared to Rs 81.13 crore in the same period of the last year following 8220;higher incidence of interest and depreciation due to the commissioning of new cement plants8221;. Ballarpur Industries Ltd BILT of the Thapar group has reported a lower net profit of Rs 7.65 crore and a reduction in net sales at Rs 277 crore for the first quarter.

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Several experts, however, felt that the quarterly results would not give an indication of the full year8217;s performance. 8220;SEBI made it mandatory that companies should disclose their performance on a quarterly basis. Many industry associations like Assocham had opposed the idea of the quarterly results. The quarterly figures may give a distorted picture,8221; said an industry spokesman.

He said most of the companies especially manufacturing concernsgenerate profits from other income8217;, sale of assets and other adjustments. The Vijaypat Singhania-owned Raymond had posted a loss of Rs 10.93 crore in the first quarter of the last year, but it made a profit of Rs 45.02 crore for the full year 1997-98. This year again Raymond has made a loss of Rs 12.76 crore for the first quarter.