Earnings growth to be faster than topline in Q2 FY 08: CMIE

Earnings growth to be faster than topline in Q2 FY 08: CMIE

Mumbai: Corporate India’s topline growth is expected to slowdown but earnings growth would be much faster in the second quarter of the ongoing financial year.

“Corporate India is expected to report a 16.3% growth in sales revenues for the quarter ended September 30, 2007. This is slower than the growth experienced in the past four quarters," the Centre for Monitoring Indian Economy (CMIE) said in its monthly review of the Indian economy.

CMIE expects this slower growth to be the effect of a high base as well as a significant slowdown in sectors like software, steel, aluminium and aluminium products, automobile ancillaries, petroleum products, commercial vehicles, paper, sugar and fertilisers,“ the think-tank said.

The slower growth in the steel sector is largely due to a higher base while the slowdown in the aluminium sector is due to capacity constraints, it said.

The sugar sector is reeling under lower prices due to a glut in output while the fertiliser sector is facing both capacity as well as raw material constraints.

The slowdown in commercial vehicles is due to higher interest rates, while the automobile ancillaries sector would post slower sales growth on account of lower growth in the automobile sector as a whole, the CMIE report said.

CMIE stated that sectors which are expected to clock a revenue growth of at least 25% in Q2 FY 08 include cement, construction, telecom, generators, material handling equipment, pumps, plastic, beer and alcohol, hardware, pig and sponge iron besides financial services.

Higher prices and robust demand from the construction sector are driving growth in the cement sector, it said.

Growing investments in manufacturing are fuelling growth in material handling equipment, pumps and other engineering industries while capacity expansion is pushing growth in the iron industry.

Employee cost of India Inc is also expected to grow faster than revenues during the quarter. The impact of the appreciating rupee is expected to be felt in the export-oriented industries.

Raw material cost, on the other hand, will report a slower growth than sales revenues.

CMIE expects corporate India to hold on to its double- digit net margin that it achieved in the preceding quarter.

“This healthy margin is expected to come from a faster growth in sales revenues than in cost. Faster growth in sales is largely due to higher sales realisation," it said.

“The higher sales realisations being enjoyed by corporate India indicate that demand is largely intact. Demand growth took a hit in some sectors that are sensitive to high interest rates. Given that interest rates are weakening, we expect demand to revive more robustly in the Q3 FY 08," CMIE said.