Mumbai: Growth in net sales of Indian firms in the three months ended 30 June rose at the slowest pace in six quarters, hurt by a global economic slowdown, high commodity prices and interest rates.
Net profit margin, or profit earned per rupee worth of goods sold or services rendered, widened at the slowest pace in at least 10 quarters as higher input costs and interest expenses proved to be a drag.
“Margins are expected to fall this quarter because companies will be willing to sacrifice a bit on margins as long as sales volumes continue to grow,” said Deepak Jasani, head retail research, HDFC Securities Ltd. “There may not be any major surprises in this quarter’s results.”
Net profit margin was at 11.47%, while expenses and interest costs rose to at least a 10-quarter high. As a percentage of net sales, the aggregate expenses of these firms stood at 81.67% while interest costs formed 3.45%.
The trend was similar in 11 of the 50 firms on the Nifty index of the National Stock Exchange that have announced earnings so far, with the growth in their aggregate net profit hitting a 10-quarter low of 4.43%. Growth in net sales hit a six-quarter low of 16.25%. in the June 2012 quarter, the aggregate earnings of all 50 Nifty firms grew 8.58%.
As more firms report their numbers, the average rate of growth in aggregate sales and profit may slow, analysts say.
“So far, mostly high-growth companies such as TCS (Tata Consultancy Services Ltd), HDFC Bank, Axis Bank and so on have reported the numbers. As the season progresses and more companies release their numbers, the growth rate may come down significantly,” said Rajat Rajgarhia, head of research, Motilal Oswal Financial Services Ltd.
While HDFC Bank Ltd’s June quarter net profit rose a better-than-expected 31%,?that of Axis Bank Ltd grew 22.4%, helped by higher retail lending.
“This could be the bottom, but things will not be better from here unless three things change. Either the underlying demand should improve or the commodity prices should fall and the rupee should recover or there should be a drop in interest rates. None of this has happened,” Rajgarhia said.
The Thomson Reuters CRB Jefferies Index, which gauges global commodity prices, was at 304.57 last week, up 14% from a recent low recorded in June. It had peaked at 370.56 in April 2011.
As of Friday’s close of Rs 55.3275 against the dollar, the rupee is down 4.09% in the calendar year so far, thus offsetting the benefits of a fall in crude oil prices in the same period. With the world’s major economies teetering on the brink of a recession, crude prices have fallen 12.75% from a high of $123.44 per barrel in March to $106.83 on Friday.
Last month, the Reserve Bank of India (RBI), which began reversing its policy stance in April by slashing its key repurchase rate by 50 basis points (bps) and a two-stage cash reserve ratio (CRR) cut of 125 bps since January, kept its key lending rate and CRR unchanged in its June policy. One basis point is one-hundredth of a percentage point.
The repo rate, at which RBI lends overnight funds to banks, is 8%. CRR, the portion of deposits banks have to keep with RBI earning no interest, is pegged at 4.75%. “There is some concern about rising non-performing assets (NPAs) in the banking sector and shrinking net interest margins. In technology, there is a mixed trend in terms of guidance,” said Jasani of HDFC Securities.
Aggregate gross NPAs of seven banks rose 17.8% to Rs 6,485.99 crore from the year earlier.
Information technology companies TCS and Infosys Ltd—which posted April-June quarter earnings on the same day for the first time—had contrasting outcomes and conflicting outlook.
While TCS results beat analysts’ expectations, India’s second largest software exporter Infosys shocked investors by cutting its fiscal 2013 growth guidance to 5% from 8-10% indicated in April. It attributed the cut to cross-currency volatility in its Western markets and a pricing decline.
Most brokerages were expecting the slowdown in Indian firms’ earnings to continue in the June quarter as sluggish sales growth and higher input costs crimp margins, while some were bullish on IT firms.
ICICI Securities Ltd had in its earnings preview said it expected IT and pharmaceutical companies to report strong earnings boosted by a weaker rupee.
“Rupee depreciation (7.5% quarter-on-quarter, q-o-q, and 20.8% year-on-year, y-o-y) has acted as a strong tailwind in supporting growth for oil and gas, IT and pharma,” the brokerage had said.
“High inflation and a slowing GDP (gross domestic product) growth are expected to continue hampering the earnings growth for the Sensex and our coverage companies. Normalized earnings growth for the Sensex is expected at 9.4% and that for our coverage companies is expected at 10.7% (this is excluding the oil and gas sector, State Bank of India and Tata Motors Ltd to eliminate distortions),” Angel Broking Ltd had said in its earnings preview report. The Sensex is the benchmark equities index on BSE.
ashwin.r@livemint.com
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