A sharp rise in crude oil prices, depreciation in rupee and a rise in power cost have impacted the performance of companies in the first quarter ended June 30, 2012. Besides power and fuel cost, manufacturing companies have also seen a sharp rise depreciation and interest outgo, resulting in a decline in net profits.
A study carried out by the Centre for Monitoring Indian Economy (CMIE) on the financial performance of the corporate sector for the first quarter ended June 30, 2012, reveals that the net profits of 1,478 companies rose by a mere 2.7 per cent compared to the same period in the previous year.
However, CMIE believes that the growth in corporate profits would improve to 10.2 per cent once the remaining 3,000 plus companies listed on the stock exchanges come out with their financial results for the June 2012 quarter. This growth, however, will be much slower sequentially than the 22.1 per cent growth in net profits clocked by corporates in the previous quarter ended March 31, 2012.
CMIE estimates the net profit margin of corporate India to have contracted to 5.4 per cent in the June quarter after jumping to 8.3 per cent in the March quarter. This would be the second lowest quarterly margin witnessed by corporate India in the last 10 years, CMIE said in its study.
CMIE estimates corporate sales to have grown by 15.2 per cent in the June quarter. Although healthy, the growth will be the slowest recorded by the corporate India in the last 10 quarters.
CMIE, however, expects the profitability of companies to improve from now onwards. The profit after tax margin is expected to expand from 5.4 per cent in the June quarter to 6.4 per cent in the September quarter. It is expected to expand further to 7.4 per cent in December quarter and 7.8 in the March 2013 quarter.
The growth in profits too is expected to accelerate from 10.2 per cent in June 2012 quarter to 23.6 per cent in December 2012 quarter. In spite of a healthy profit performance, the year-on-year growth in March 2013 quarter is expected to be weak at 3.2 per cent because of the high base, the CMIE report says.
For the financial year 2012-13, corporate profits are expected to rise by 17.7 per cent, after contracting 0.5 per cent in 2011-12.
The softening input costs, lower forex losses and slower increase in interest outgo of the manufacturing sector due to the expected softening of interest rates would result in the improvement in profits in 2012-13.
CMIE expects the improvement in profits across all segments. Net profits of the manufacturing sector and the non-financial services sector are expected to grow by 18.8 per cent and 14.7 per cent, respectively, in 2012-13 after falling by around eight per cent in the previous year. The growth in the performance of financial services sector is expected to accelerate to 20.2 per cent from 13.2 per cent due to slower increase in provisioning and contingencies.
Growth in sales, however, is expected to slow down to 13.2 per cent from over 20 per cent in the preceding two years. This will be mainly on account of a sharp deceleration in sales growth of the petroleum products and the banking industry which collectively account for over 40 per cent of sales of corporate India.
The rest of corporate India will be able to maintain its growth rate in 2012-13.
Drop in debt mobilisation
In spite of a substantial rise in the number of debt issues floated, the total amount mobilised by corporates declined by 18.9 per cent in July as per the details available at present, as compared to the same period in the previous year.
According to CMIE, Indian corporates floated 382 debt issues in July 2012, 92.9 per cent higher than the number of issues floated in the year-ago period. But the amount raised was Rs. 16,937 crore against Rs. 20,891 crore in July 2011. Although CMIE expects a rise in the amount raised as more data becomes available, it is unlikely to cross the levels reached in July 2011.
As per the currently available data, Housing Development Finance Corporation raised a total of Rs. 4,850 crore through a series of debt issues with interest rates ranging from 9.5 to 9.6 per cent.
This was the highest amount raised by a single entity during the month. However, Rural Electrification Corporation raised the highest amount via a single issue in July. It mobilised Rs. 2,125 crore at an interest rate of 9.4 per cent for a five year period.
However, profitability is expected to improve in the coming quarters