Mumbai: Sales and earnings growth for the 30 firms that constitute the benchmark Sensex have slowed down in the January-March 2007 quarter.
A Mint analysis of the 30 companies shows that year-on-year growth in net sales fell from 31.63% for the October-December 2006 quarter to 22.05% in the March quarter. Similarly, the year-on-year growth in net profit decelerated from 34.58% in the December quarter to 25.23% in the March quarter. Oil and Natural Gas Corp. Ltd (ONGC), the last Sensex company to declare its results for the January-March quarter, did so on Monday.
“This is perhaps because of the base effect. Some of the Sensex companies have acquired substantial size now. So, while they are still growing in absolute numbers, they may not be growing as much in percentage terms,” says Harendra Kumar, head of research at ICICI Direct, an online brokerage. “It is unfair to expect that a $3 billion Infosys will continue to grow at 30%. This is a trade-off to gaining size.”
If oil companies, with their volatile earnings (because of crude prices and an administered price regime for fuel in India), are left out of the picture, net profit growth for the Sensex companies is actually higher at 36.25% for the March quarter, compared to 35.88% for the December quarter. But if commercial banks and financial institutions too are excluded, net profits of the Sensex companies show year-on-year growth of 35.95% in the March quarter, down from 40.51% in the December quarter and 39.87% in the September quarter. Three banks and mortgages firm Housing Development Finance Corporation Ltd are part of Sensex, as are two oil firms, Reliance Industries Ltd (RIL) and ONGC.
RIL has the highest weight among the Sensex stocks, 12.86%, followed Infosys Technologies Ltd at 10.25% and ICICI Bank Ltd at 9.29%.
In the January-March quarter, several factors helped the Sensex firms grow sales and profits. Companies such as Larsen & Toubro Ltd and Bharat Heavy Electricals Ltd benefited from India’s capacity expansion drive and the rise in infrastructure spending. IT companies posted good results, with rupee appreciation not affecting the quarter’s earnings to any appreciable extent. And a combination of volume growth and pricing power led to a substantial rise in net profits for the cement companies.
Not all developments were positive, though: the net profits of the two-wheeler companies were hit by the rise in interest rates. “Post December, the Reserve Bank of India adopted a more aggressive stand on interest rate and liquidity. This process of bringing inflation in check did slow credit growth,” says Kalpesh Parekh, head of research at ASK Group, a Mumbai-based brokerage.
Ketan Karani, head of research at Kotak Securities, says there is nothing unusual in the trend. “December is always the best quarter because sales are strong in the festive and post harvest months of September, October and November. March quarter results usually lag December quarter results, so this is not a surprise,” he says. Other analysts point out that while growth may be slowing down, it remains among the highest in Asia.
Lalit Thakkar, head of research at Angel Broking Ltd, says there will be some moderation. “Growth in corporate profit has already come down to the 20% level and will eventually moderate to the 17-18% level,” he says. He expects the earnings per share for the Sensex companies to be Rs810 for FY08 compared to Rs720 for FY07, a 12.5% growth.