Economy
Economic slowdown has not bottomed out yet, says Nomura

Revenues of companies have slowed down on the back of lower volumes. Persistent pressure on nominal sales growth suggests that economic slowdown has not bottomed out yet, according to a recent report by Nomura
 

India’s economic growth is likely be around 5.5% in the quarter ended in September 2012, said finance minister P Chidambaram on Saturday. This would be the slowest growth for the financial year since 2002-03 and a below 6% growth rate for the third quarter in a row. Revenues have taken a hit. According to the latest India strategy report from Nomura Equity Research, the downward slide in topline growth, began in the middle of last year and has continued this quarter. The growth rate of net sales has halved over this period. Overall inflation has remained elevated and persistent pressure on nominal sales growth suggests that real economic growth has not bottomed out yet.
 

Sequentially, this was the weakest September quarter in the post-crisis period in terms of quarter-on-quarter (Q-o-Q) sales growth. Even the year-on-year (Y-o-Y) sales growth had bottomed in June 2009 and post-March 2011, the trend has been downwards. Operating margins also remained under pressure, but according to Nomura, this is not altogether surprising given that the quest to maintain/gain market share in a slowing growth environment is keeping costs elevated.
 

Among the sectors that registered the highest Y-o-Y sales growth was the pharmaceuticals with a 27% sales growth, closely followed by IT services with a 26% sales growth. Operating profit growth Y-o-Y was 34% and 31% respectively. Electrical equipment, metals & mining and real estate sector registered the lowest sales growth and negative operating profit.
 

For the 112 stocks in the Nomura coverage, net sales, ex-oil & gas PSUs and banks, were up 14% Y-o-Y; EBITDA was up 10% Y-o-Y; net profit was up 22% Y-o-Y. EBITDA margin was down 60 bps (basis points) Y-o-Y. Banks’ profits were up 27% Y-o-Y. The net earnings revisions remained negative during the earnings season, although the extent of downward revisions was less than in the preceding quarter.

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