Companies & Sectors
Corporate profitability to be under pressure in Q4FY2011, says CRISIL

Rising commodity prices, interest rates and intense competition, which is limiting the pricing power of corporate, would affect the profitability of Indian companies in the fourth quarter, according to the ratings agency

Ratings agency CRISIL has said that it expects profitability of Indian companies to be under pressure during the January-March 2011 quarter (Q4FY11) due to rising raw material costs and increased competition.

"Going ahead, we expect the operating profit margins (OPMs) to remain under pressure due to rising commodity prices. In addition, intense competition is limiting the pricing power of corporates, and players are being forced to largely absorb the rise in input costs. The rising interest rates will also impact net margins," said Nagarajan Narasimhan, director-CRISIL Research.

During Q4FY11, the rising costs of inputs are likely to put pressure on the margins of automobile manufacturers as well as cement producers. In IT services too, margins are expected to remain under pressure on a year-on-year (y-o-y) basis due to the appreciating rupee and wage inflation, Mr Narasimhan said in a report.

On the positive side, the anticipated increase in steel prices and strong demand would offset the impact of rising input costs for steel players, for whom margins are expected to improve in Q4FY11. Similarly, for yarn manufacturers, operating margins are likely to remain stable, as players would pass on the rise in raw material costs to consumers by hiking product prices and altering the raw material mix by using more polyester, the report said.

The ratings agency said, based on an analysis of the aggregate financial performance of select companies, excluding the oil refining and marketing companies across 23 industries, revenue growth is expected to be higher on a y-o-y basis, while OPMs are expected to be lower.

Revenues, which grew by 22.4% y-o-y in October-December 2010 (Q3FY11), are likely to decelerate to 20-21% in Q4FY11. The expected growth in revenues is significantly higher than the 13.7% growth witnessed in January-March 2010 (Q4FY10).

CRISIL Research said it expects the operating profit margin to decline to around 22-23% in Q4FY11, from 26.1% in the previous corresponding period. In Q3FY11, the operating profit margin of Indian companies stood at 26.1% compared to 26.7% in the corresponding period a year ago, and 25.2% in Q2FY11.

Prices of key raw materials such as aluminium, rubber, coking coal, steel and iron ore increased due to rising demand and constrained supply, owing to weather-related events (such as the recent floods in Australia), thereby exerting pressure on margins of automobile and auto component manufacturers.

In IT services, operating margins slipped as the rupee appreciated by 3.7% y-o-y against the dollar and employee costs rose due to high attrition and wage inflation. CRISIL, which is a unit of Standard & Poor's, the international ratings company, said that in contrast, operating margins in sectors such as organised retail, shipping and textiles showed an improvement. In organised retail, margins rose due to increasing product prices. Although raw material costs increased sharply in cotton yarn, manufacturers were able to pass on the hike owing to robust demand.

"Corporate India's performance in Q3FY11 was in line with our expectations. The strong revenue growth during Q3FY11 can largely be attributed to the consumer confidence and also the low base in the corresponding quarter of the previous year," Mr Narasimhan said.


Google salutes Bollywood through a doodle on Alam Ara, India’s first talkie

While Google is commemorating the first Indian talkie, Alam Ara, unfortunately, there is not a single print of the movie available today

Internet search giant Google has created a doodle (design weaved in the Google name) on its search page dedicated to India's first talkie (a movie with sound), Alam Ara. About 80 years ago, on 14 March 1931, Alam Ara ('The light of the world'), was released at the Majestic Cinema in Mumbai. The movie directed by Ardeshir Irani became an instant hit and went on to become so popular that the theatre had to call the police to control the crowd!

However, while Google is celebrating 80 years of India's first talkie, according to media reports, there is not a single print of the movie available. In 2003, Alam Ara's last print was destroyed in a fire at the National Film Archive of India in Pune along with several classics like Raja Harishchandra and Achhut Kanya.

According to Wikipedia, both the movie and its music were widely successful, including the hit song 'De de khuda ke naam per', which was also the first song of Indian cinema, and was sung by actor Wazir Mohammed Khan who played the role of a fakir in the film. As playback singing had yet to start in Indian cinema, it was recorded live with musical accompaniment of a harmonium and a tabla.

The film also marked the beginning of film music in Indian cinema as noted film director Shyam Benegal said, "It was not just a talkie. It was a talking and singing film with more singing and less talking. It had a number of songs and that actually set the template for the kind of films that were made later."

During the production of Alam Ara, Mr Irani handled the sound-recording department, using the 'Taran Sound System'. It was shot with the Tanar single-system camera, which recorded sound directly on to the film. Since there were no soundproof studios available at that time, the shooting was done mainly at night, to avoid daytime noises, with microphones hidden near the actors.

Alam Ara is a story between a prince and a gypsy girl. It is a period fantasy that tells the story of the ageing king of Kamarpur, and his two rival queens, Navbahar and Dilbahar, and their rivalry when a fakir predicts that Navbahar will bear the king's heir. Dilbahar, in revenge, attempts to have an affair with the kingdom's chief minister Adil. The affair goes sour and a vengeful Dilbahar imprisons him and exiles his daughter, Alam Ara (Zubeida). In exile, Alam Ara is brought up by gypsies.

Upon returning to the palace at Kumarpur, Alam Ara meets and falls in love with the charming young prince (Master Vithal). In the end, Adil is released, Dilbahar is punished and the lovers marry.


Rise in inflation may force RBI to hike policy rates

While the wholesale price index based inflation rose marginally to 8.31% in February, from 8.23% in the previous month, finance minister Pranab Mukherjee has expressed hope that inflation would come down to around 7-7.5% by end-March

New Delhi: India's headline inflation rose marginally to 8.31% for the month ended February, driven by high food and fuel prices, which may prompt the Reserve Bank of India (RBI) to hike interest rates when it reviews the monetary policy later this week, reports PTI.

However, finance minister Pranab Mukherjee expressed hope that inflation should come down to 7% by the month-end.

"By March-end, it would be possible to have around 7%-7.5% (inflation)," Mr Mukherjee told reporters in the Parliament House complex.

Monthly fluctuations in inflation do not give a correct picture, he added.

The inflation rate stood at 8.23% in January this year, whereas it was 9.42% in February last year.

The rise in inflation was mainly on account of higher milk, edible oil, vegetables and fruit prices. In addition, high fuel prices on account of soaring international crude oil rates also contributed to the inflation.

Hit by the tsunami in Japan, crude oil prices have eased to $99 per barrel on expectations of lower demand. This will also result in cooling of commodity prices globally.

During February, food inflation, which accounts for over 14% of overall wholesale price index (WPI) inflation, stood at 10.65% on year-on-year basis.

As per the WPI data, the prices of primary articles-food, non-food articles and minerals-shot up by 14.79% on an annual basis, official data showed. However, prices of certain food items declined on a year-on-year basis.

While wheat became cheaper by 1.67%, pulses prices fell by 5.10% and rates for potatoes by 11.28%.

On a monthly basis, prices of jowar rose by 9%, arhar by 7%, barley 4%, mutton by 3%, and wheat by 2%, while milk, maize and poultry chicken became 1% more expensive.

However, fruits and vegetables became cheaper by as much as 20%, while spices dropped by 4%, eggs by 2% and rice by 1%.

With inflation showing no signs of moderation, it is widely expected that the RBI may raise key policy rates by 25 basis points at its monetary policy review on 17th March.

The RBI may raise key policy rates by 25 basis points to prevent food inflation from spilling over to the manufacturing sector, Crisil chief economist DK Joshi said.

During the month, fuel and power prices went up by 11.19%, driven mainly by a 28.73% rise in petrol prices and a 14.99% jump in cooking gas (LPG) rates on an annual basis.

On a monthly basis, prices of aviation turbine fuel rose by 7% and furnace oil and petrol by 3% each, while naphtha became 2% more costly.

At the same time, the manufactured goods group index rose by 4.49% on an annual basis. Manufactured items have the highest weight of 64.9% in the WPI.

Edible oil prices hardened by 11.44% on an annual basis, basic metal and metal products by 8.61% and iron and steel by 9.53%, while cement prices remained almost stagnant.

On a month-on-month basis, prices of soyabean oil moved up by 8% and wheat flour (atta) by 5%, while vanaspati, powder milk and mustard oil prices rose by 3 % each.

However, the prices of tea leaf (blended) eased by 14%, groundnut oil by 3% and ice cream and sugar by 2% each.

Meanwhile, the WPI numbers were revised upward to 9.41% for the month of December, compared to a provisional 8.43% announced earlier.

ICRA economist Aditi Nayar, too, said the RBI may go for a hike in interest rates.

"We continue to expect that the RBI may increase repo and reverse repo rates by 25 basis points in the upcoming mid-quarter policy review," she said.


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