Mumbai: The net profit of 19 firms on the Sensex, India’s benchmark equities index, rose at the slowest pace in 13 quarters in the three months ended 30 June despite decent growth in sales as raw material costs hit a seven-year high. Some experts said the performance of local firms is unlikely to worsen further.

The net profit of these two-thirds of the Sensex firms, for which data is available for the past 28 quarters, grew 6.64% in the June quarter after rising 8.6% in the March quarter, while sales grew 18.09% in the same period.

Net profit margin, or the actual profit made by companies per rupee worth of goods sold or services rendered, on an average, hit a seven-year low of 11.09% as total expenses as a percentage of net sales scaled a seven-year high at 83.35%.

Interest expenses as a percentage of sales were at a three-quarter high of 1.12%. Aggregate interest payouts by these companies, too, were at a three-quarter high of 2,129.76 crore.

“High domestic inflation, a stronger dollar and overall higher interest rates have impacted profitability of the corporate sector as a whole," said Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services Ltd. Oswal is one of those experts who said the performance of Indian firms will not worsen from this level.

The Reserve Bank of India (RBI), in its quarterly monetary policy review on 31 July, kept interest rates unchanged with no sign of inflation easing. In fact, RBI has raised its inflation projection of the 2013 fiscal to 7% from 6.5% and slashed its growth forecast from 7.3% to 6.5%.

Though sales grew marginally higher than the 16.68% growth recorded in the March quarter, analysts said there was little volume growth to support this, and the revenue growth for the major part was aided by price hikes that firms resorted to, to pass on higher input costs.

“Revenues have picked up on account of inflation. Whether it is food or fuel, inflation has had a severe impact. Volume growth was poor and the rise in sales volume is on account of price increases, which had to be done to pass on higher raw material prices," said Vishal Jajoo, senior research analyst, Nirmal Bang Securities Pvt. Ltd.

The Jefferies CRB index, a gauge of global commodity prices, fell 7.87% in the quarter.

Though global crude prices dropped 18.33% in the quarter and rose 3.83% in the calendar year, it did not help companies much as the rupee depreciated 8.56% against the dollar. A weaker currency offsets the benefits arising from lower crude prices. “We are net importers and dependent on crude prices. Crude prices have fallen, but to no benefit because of the impact of currency depreciation," Jajoo said.

He added Indian companies may be passing through one of their worst quarters and the bottom could be near.

The average performance of 30 companies in the 50-share Nifty index of the National Stock Exchange of India Ltd was slightly better on the back of robust numbers from companies such as HCL Technologies Ltd, Axis Bank Ltd, ACC Ltd and Ambuja Cements Ltd.

The Sensex, BSE’s bellwether index, consists of 30 companies. All Sensex companies are part of Nifty.

“The market has been divided into good and bad performers. For instance, cement and information technology companies (referring to Tata Consultancy Services Ltd and HCL Technologies) have done well," said Oswal.

The June quarter earnings of ACC and Ambuja Cements also beat Street expectations. While the former’s net profit grew 26.3% from over a year ago, Ambuja’s profit after tax rose 34.9%. In both the cases, the below-average volume growth was compensated by an increase in realization, driven by price hikes. Oswal agreed with Jajoo that the performance of the Indian companies can’t get worse from here.

“Numbers have panned out to be better than what we had expected. We think there is no cause of concern as our estimates show that the worst is behind us," Oswal said.

HCL Technologies blew past analysts’ estimates in the June quarter, reporting a 27.5% quarter-on-quarter jump in earnings before interest and tax to 1,182 crore. Revenue growth was impressive at 4.6% in constant currency terms, ahead of Street expectations of 3-3.5% growth.

Jet Airways (India) Ltd and India’s second largest low fair carrier SpiceJet Ltd post net profits in June quarter, beating analysts estimates.

Most private sector banks have done well on the back of higher interest income and fee income while a few public sector banks have shown clear signs of asset quality deteriorating. Their profits have fallen as they needed to set aside money to take care of the pile of bad assets.

Even though some analysts are saying the worst is over, not everybody wants to commit at this point as one-third of the Sensex companies are yet to announce their earnings. Among others, most companies in the Tata Group and Anil Ambani’s Reliance Group are yet to announce their June-quarter earnings.


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