Mumbai: The top 100 companies based in financial capital Mumbai paid nearly one-fifth more advance tax for the quarter ending 31 December over a year ago, indicating that corporate earnings growth is on track this fiscal despite fears about growing wage and input costs.
“It is positive and looks like corporate earnings are on track,” said Ajay Parmar, head of institutional research at Emkay Global Financial Services Ltd.
This set of companies paid 18% more tax in the three months ended December compared with a year ago.
Advance tax is paid by Indian firms every quarter based on earnings projections and these numbers are considered a proxy for financial performance. Yet, given the adjustments to numbers that companies sometimes make, they cannot be used as a clear indicator for company earnings estimates.
“The suspense among analysts is over the margin numbers,” said N. Sethuram Iyer, chief investment officer at Shinsei Asset Management (India) Pvt. Ltd. “The advance tax numbers are an indicator of where the bottomline will settle, but I don’t think it is a clear indicator.”
The consensus Street estimate for fiscal 2011 earnings increase is 20%. A Mint analysis of 375 of the BSE-500 index firms showed that their profits rose 17.5% in the September quarter over a year ago. BSE-500 is an index of 500 stocks traded on the Bombay Stock Exchange that account for 93% of India’s market capitalization.
A 20% increase in company earnings is considered par for the course by many analysts given that nominal economic growth is close to 16% (8% real gross domestic product growth plus 8% inflation).
A 10.8% increase in factory output in October, and 8.8% gain in economic output in the second quarter should help companies post these double-digit profit gains despite biting commodity price inflation, analysts said.
That augurs well for the government’s target of raising Rs 4.30 trillion through direct taxes this fiscal, around 11% more than last year’s mop-up.
“The overall target for corporate tax is 18% increase this year,” said an income-tax official, who didn’t want to be named. “Going by the current numbers, it looks like we will easily achieve it.”
The collections of securities transaction tax, which is the levy paid on every trade in the securities market, also increased 2.7% to Rs 5,263 crore so far this fiscal.
Unlike in the previous quarters where manufacturing firms led the gains in tax paid, the higher tax paying firms are spread across sectors. Oil refining companies such as Hindustan Petroleum Corp. Ltd, Indian Oil Corp. Ltd and Mangalore Refinery and Petrochemicals Ltd paid taxes this quarter compared to nothing a year ago.
Reliance Industries Ltd (RIL), India’s most valuable company, also paid 42% more tax, at Rs 1,191 crore for this quarter.
The largest tax payer, according to data so far available with Mint, is Oil and Natural Gas Corp. Ltd (ONGC), which paid Rs 2,742 crore for the quarter. Comparable numbers for the previous quarter were not available.
State Bank of India was the largest tax payer in Mumbai. The country’s largest lender paid a levy of Rs 1,850 crore for the quarter, up 30% over a year ago.
After RIL, Life Insurance Corp. of India was the third highest tax payer in Mumbai at Rs 1,067 crore, an 8% increase from the previous period.
The levy paid by 19 Nifty firms (excluding ONGC), for which data is available, showed an increase of 23% over a year ago. Among these set of firms, Tata Motors Ltd showed the highest increase in tax paid, up 120% at Rs 220 crore. HDFC Bank Ltd paid a levy of Rs 750 crore, up 87.5% over a year ago, while Tata Steel Ltd paid Rs 1,000 crore, a gain of 53% over the previous period.
Nifty is a basket of the 50 top firms traded on National Stock Exchange.