Mumbai: Advance tax payments made by the top 100 companies based in India’s financial capital Mumbai rose by one-fifth for the quarter ending 30 June, indicating that earnings are set to rise on robust economic growth.
“The numbers are strong in most cases,” said Apurva Shah, vice-president at brokerage Prabhudas Lilladher Ltd.
However, one can’t extrapolate about whether these numbers will lead to earnings upgrade for listed firms, he added.
The consensus Street estimate for fiscal 2011 earnings increase is 20% and at this level, the benchmark Sensex index on the Bombay Stock Exchange is trading at an earnings multiple of 16.79, a bit above the long-term average. An increase in earnings estimate will lower the price-earnings multiple and make stock valuations look cheaper.
Corporations in India pay income-tax every quarter on their projected earnings and the first quarter typically accounts for 15% of the annual tax payout for firms. The figures are used as a proxy for financial performance estimates.
“Historically, the correlation of earnings with actual profits has been mixed,” said Mohan K.R. Swamy, head of equities research?at?the?Royal Bank of Scotland Plc’s local securities unit.
Manufacturing companies, led by auto firms, showed a robust growth in tax paid. Cement firms saw a decline in tax paid while banks and finance companies presented a mixed picture.
In the first quarter, State Bank of India (SBI), the country’s largest lender, is the highest tax payer in the Mumbai circle, paying Rs869 crore, down 18.5% from a year ago.
Just like in the previous quarter, foreign banks, too, presented a mixed picture. Analysts said it was too early to draw any inference from these numbers as banks typically “re-provision and accommodate changes in interest rates.”
Among Indian lenders, ICICI Bank Ltd paid the same amount as last year—Rs350 crore. HDFC Bank Ltd paid Rs315 crore, an increase of 26%, while Punjab National bank Ltd paid Rs317 crore, up by one-fifth.
Among other companies, Reliance Industries Ltd (RIL), India’s largest private firm by market value, paid Rs653 crore, more than double of what it paid a year ago. This is largely because the profits from gas sales from its fields in the Krishna-Godavari basin off the eastern coast are likely to kick in.
RIL is the second largest advance tax paper after SBI.
The Life Insurance Corp. of India is the third largest taxpayer in Mumbai, with an outgo of Rs469 crore, up 13.76% from a year ago.
“The collection is better than last year but not robust,” said an income-tax official, who didn’t want to be named as he is not authorized to speak with the media.
The top 100 companies in Mumbai together paid Rs8,181.93 crore, an increase of 20.83% over the levy paid in June 2009. Companies based in Mumbai contribute about one-third of India’s direct tax kitty.
The official figures for the country are yet to be collated by the income-tax department. The government has a direct tax target of Rs4.30 trillion this fiscal, around 11% more than last year’s target.
For now, it seems well within reach, given this sample of advance tax collections and other supporting indicators such as industrial output. The Index of Industrial Production numbers for April grew at 17.6% over a year ago, beating analysts’ estimates by a wide margin.
Of the 22 members of the Nifty index of the National Stock Exchange whose advance tax figures are available, 17 have paid more tax. These firms together paid 19.9% more tax this quarter compared with a year ago.
Mahindra and Mahindra Ltd paid Rs63 crore, up 260%, and Tata Motors Ltd paid Rs65 crore, more than double last year’s outgo.
India’s top software firm Tata Consultancy Services Ltd paid Rs128 crore, up 141%, signalling technology firms are on a firm growth path.