Q4FY-13 Results Analysis

Corporate India’s scorecard for the March 2013 quarter has been largely subdued. While lacklustre, the results cannot exactly be termed as disappointing as factors like inflation, interest costs and slower GDP growth were expected to keep the performance muted. DSIJ dissects the details of the Q4 results story and tells you what to look out for in the forthcoming quarter

The curtains are drawn on the results season, and as was expected, the numbers are not exactly heartening. This is the second quarter on the run that the numbers have been dismal and Corporate India is finding it hard to keep its head above the water. Despite the efforts to cope at the micro level, the macroeconomic environment is making each quarter a hurdle race of sorts for India Inc. The policy measures to buoy them up have proved to be sorely inadequate so far, some in their concept and most in their execution.

While both inflation and higher interest costs have remained stubbornly on the higher side and have been playing spoilsport for many quarters now, weakening IIP numbers are proving to be a fresh sore point. Put together, these factors have only aggravated the situation for India Inc., whose bottomlines are weakening at the knees.India Inc.'s scorecard for the quarter more or less reflects the country's GDP growth performance, which at best can be described as lacklustre. A few factors that emerge clearly from the results are that sales growth is slipping, the profit margins are dull, while the bottomlines have hardly increased. Our analysis of 1502 companies (frequently traded companies from Group ‘A’ and ‘B’) reflects poor performance in terms of sales and profit growth.

Here, we would like to remind our investors that the stratum excludes refinery majors on account of their ability to skew the aggregates due to their disproportionate size and the impact of subsidies on their bottomlines. The numbers are also adjusted for extraordinary income and losses.

While the results are said to be below the street’s expectations, they hardly come as a surprise to us. In our review of the previous quarter’s numbers, we at DSIJ had called out that ‘as far as the March quarter of 2013 is concerned, one should not expect much of an improvement... while downgrades are a thing of the past, an upgrade from here on till the end of FY13 will also be a remote possibility’.

Q4 Results – A Sorry Picture

If we take a look at the numbers, the topline growth of just 6.90 per cent and bottomline growth of a paltry 0.16 per cent is much below the street’s estimates. Though the odds were of them being in the lower single digits, the below one percent growth in bottomline has proved to be a great disappointment.

What’s worse about the results is that the breadth has been quite a let-down on the bottomline front. In all, 723 companies have managed to put in higher net profits and 779 companies have put in lower net profits for the March quarter on a YoY basis.

One positive with regard to the coporate performance is a slight improvement seen on a sequential basis. On this front, while the topline has increased by 4.52 per cent, the bottomline has gone up 2.21 per cent. Though the figures may look small, sequential growth is a good sign.

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Interest Costs – Woes Continue

The pressure of interest and depreciation costs was slightly lower during the quarter compared to that in the immediately preceding few quarters, which enabled companies to maintain their net profit margins on a sequential basis. However, this does not mean that there has been any meaningful correction in the interest costs for India Inc. On a YoY basis, the interest costs (excluding banking and financial services) have increased by 12.28 per cent. This is still on the higher side, with the interest as a percentage of the EBITDA at 22.50 per cent, up from 20.10 per cent in the previous year same quarter. This clearly indicates that the impact of the two rate cuts is yet to have a bearing on the results. Though a few banks stepped forward to reduce the rates, this has hardly helped India Inc.

In addition, under the new norms of reporting interest costs, if the borrowings are in a foreign currency and the rupee has depreciated, the loss has to go towards the financing cost. This may impact the June 2013 quarter results too, as the rupee has depreciated sharply in the quarter under progress.

Higher Depreciation Costs – ‘A’ Good Sign

Depreciation costs for the quarter have increased by 15.19 per cent on a YoY basis and 3.26 per cent on a QoQ basis. This is the third consecutive quarter in which the depreciation cost has increased, and this is a positive sign as it indicates that some capex is being undertaken by India Inc. The best part is that the increased depreciation is mainly being seen in the ‘A’ group companies. With larger companies going ahead with some capex, this seems to hold out some promise for the order books of capital goods companies going forward.

Margins – Still Stagnant

India Inc. saw some improvement in margins in the December 2012 quarter. However, margin pressures came back to haunt in the March 2013 quarter, with the operating margins at 11.66 per cent as against that of 12.27 per cent in March 2012.

Another noticeable factor has been that the bottomlines have been boosted by higher Other Income, which stood at 33.16 per cent as a part of the net profit against that of 28.61 per cent in March 2012.

Looking Ahead – June 2013 Quarter

With the March quarter results done and discounted, the moot question remains as to what we can expect from India Inc. in the June 2013 quarter. There are quite a few factors to take into account here. With improvement hoped for in India’s GDP growth ahead (consensus at six per cent for FY14), we feel that India Inc. will start putting in better revenue growth from the June quarter. Apart from that, commodity prices have witnessed a significant decline and this is expected to help companies put in better operational performance. The margins would pick up in the coming quarters, though the improvement will be gradual.

In addition, we see some betterment on the bottomline front as the interest costs may decline, with the lag effect of the recent repo rate cuts getting factored in. It is true that the rupee depreciation will be one factor to be watched, as those with higher foreign debt may see a negative impact.

As regards the EPS upgrades, as we had anticipated in our December 2012 quarter results analysis, no upgrades have happened in March 2013 quarter results. Of course, there have been no downgrades either, and as a result, the consensus FY14 EPS estimate remains unchanged at Rs 1475.

Ahead in this story, we have analysed 11 key sectors of the Indian economy in detail, to review how they fared in the March quarter and take a peek at what one can expect from these sector in the forthcoming quarter.

There are three major factors to be looked out for in the June 2013 quarter. The first is better revenue growth, the second is some recovery in margins and finally, improvement on the interest cost front. Overall, one can look forward to a gradual betterment in the situation going ahead.

Fast Facts

• Out of a total of 1502 companies (From Group A and B, frequently traded) that have been considered, the sales of 880 companies have increased, while those of 595 companies declined and those of 27 companies remained stagnant.
• Out of total 1502 companies (From Group A and B, frequently traded) that have been considered, the net profit of 723 companies has increased and those of 779 has declined.
• Interest cost for India Inc. (Excluding that for Banks and other financial services companies) has increased by 12.28 per cent on a YoY basis and declined by 2.76 per cent on a sequential basis. Some impact of the 50 bps repo rate cut cumulatively made in 2013 by the RBI is visible in a decline in interest costs on a sequential basis. However, the impact is likely to be felt more strongly in the June and September quarters of 2013.
• India Inc. witnessed margin pressures in the March 2013 quarter, as the net profit margins declined to 9.50 per cent from the levels of 9.72 per cent in December 2012 and 10.14 per cent in March 2012.
• Depreciation cost for the March 2013 quarter increased by 15.57 per cent on a YoY basis and by 3.37 per cent on a QoQ basis. This is a good sign, as increased depreciation signals improved capital expenditure.

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