Ready, Steady, Go!

It’s the first quarter of the new fiscal and though there is a general sense of better results from India Inc, investors are still excited about the June quarter results. And why wouldn’t they be when companies are posting better than expected results. May it be Infosys, TCS, Maruti or any of these bigwigs, all have pleasantly surprised the investors and performed quite well. The market too has given its due after these scrips surged on the bourses to catch up with the valuations. In our cover story on the Q4FY09 results we had predicted that the June quarter results would be better and with the initial numbers that are pouring in, our prediction is certainly coming true.

Of the 432 results that we have with us so far, though India Inc’s topline shows a marginal decline of 1.04 per cent, its bottomline has grown by 16.45 per cent. Thus, with this kind of a bottomline growth, this would be the second quarter in a row wherein the scenario has been positive. And these numbers are despite the fact that big daddies such as Reliance Industries have failed to report growth this quarter. In fact, to get a clearer picture we adjusted the refinery numbers and extraordinary items and found that though India Inc’s topline still remains marginally down by 1.58 per cent, the bottomline growth is still strong at 15 per cent.

On a sequential basis this result is even better as in spite of adjusting for refinery and extraordinary items the bottomline shows a fantastic growth of 24.30 per cent. Though these are just initial numbers it stands as good evidence to prove that this is indeed a road to recovery for corporate India and we believe these numbers would stay strong as more and more results pour in. But what one should note here is that it is also the amendment made to Accounting Standard 11 that has helped the corporates to post better profits.

What’s good about these results is that more and more companies are posting sales and profit growth. Out of the results of 432 companies we have with us, the sales of 239 companies have grown while that of 168 companies has declined. In terms of profits, 264 companies have posted robust growth, while that of 115[PAGE BREAK]

companies has declined. Besides, sales of India Inc continues to be well spread out with Sensex companies contributing 40.97 per cent, net group A (i.e. Group A minus Sensex companies) contributing 32 per cent and the rest of India contributing 27.02 per cent to total India Inc’s sales.

That apart, India Inc continues to control its costs considering that its total expenses have declined by 7.65 per cent, leading to margin expansion despite a flat topline growth. The operating margins for India Inc expanded a whopping 633 basis points, while the net margins too expanded by 222 basis points. Though the India Inc picture seems to be improving, this wouldn’t be far from complete without strong growth in the topline, a fact that is lacking at the moment. It should be noted that India is currently facing negative inflation and hence though we are in a recovery mode, the demand still isn’t picking up as expected, which in turn is hampering both volumes as well as realisations.

However, there are signs of improving demand and this can be seen in sectors such as auto and cement, which have been performing quite well since the last two quarters. We have said this previously and are reiterating the fact that we are actually at the start of the ‘bounce back’ phenomenon in the economy and things can only improve from here on. The best example of the same is the improvement in the Index for Industrial Production (IIP) numbers. These increased 2.7 per cent in May 2009 compared to 1.2 per cent in April 2009. It should be noted that 10 out of the 17 sectors in the IIP registered growth in the month of May.

Also, another factor to look at here is the increased fund-raising activity from India Inc which helps to increase our confidence level. It should be noted India Inc has mobilised a massive Rs 11,714 crore in Q1FY10 compared to a mere Rs 872 crore for quarter ended March 2009. Of these, nearly 56 per cent of the funds were raised in the last week of June itself. The reason why this fact is important here is because this indicates change in sentiment and the resilient spirit of India Inc that now seems to be ready to fund their growth plans. This can be realised from the fact those PSUs that had previously delayed their plans due to a weak market have now lined up their IPOs to tap the capital market.[PAGE BREAK]

However, the only factor that concerns us is the monsoon, which has arrived late this year, the longest delay witnessed in the last eight decades. Though the monsoon has comparatively improved since then, it still remains far from normal. According to a statement issued by the Agriculture and Food Distribution Minister, Sharad Pawar, between June and July 15, India received 220.5 mm of rainfall against the normal 300.8 mm. He further added that of the 533 meteorological districts, 369 received less than normal rainfall. Already Uttar Pradesh has joined the list and declared drought in 47 districts. Thus if the rains don’t improve from here on there is a possibility of it hurting the pace of India’s economic revival. Deficient rains will impact industries across the board, which in turn could damage the growth rate of India Inc. Hence, assuming this fact we believe that the Q2FY10 results will be more in line with Q1FY10 results.