PSU marketing companies continue to pile up losses selling fuel below costs. While some major banks have been hurt by higher provisioning requirements, the sector overall has been burdened by increasing rates that has slowed credit demand
Oil refiners recorded a huge 41% growth in revenues in the first quarter of the current fiscal on sustained increased volumes, but the public sector units continued to pile up major losses, compelled to sell fuels below costs. Banks also recorded good growth in income during the three-month period to June 2011, but profits declined marginally mainly on the higher cost of funds.
Refineries, one of the 29 major sectors tracked by Moneylife, totalled sales of Rs307,633 crore as compared to Rs218,426 crore in the corresponding previous quarter, according to data compiled for the seven refining companies.
However, the sector recorded a net loss of Rs3,113 crore, a whopping 39% increase from the Rs2,236 crore loss in the June 2010 quarter. All of the losses were by the three major public sector refiners-Indian Oil (Rs3,319 crore), Hindustan Petroleum (Rs3,080 crore) and Bharat Petroleum (Rs2,562 crore) corresponding to their sales volumes.
Private sector Chennai Petroleum also made losses, but the Reliance Industries, Essar Oil and Mangalore Refinery notched up decent profits. The losses of the public sector firms were probably restricted by the pressure on prices on account of lower demand.
In the June quarter, the three major PSUs are reported to have lost Rs43,500 crore by selling diesel, domestic LPG and kerosene at government controlled rates. The government has agreed to make good 34% or about Rs 15,000 crore, and another Rs14,500 crore has been provided by oil producers like ONGC, leaving a gap of Rs14,000 crore.
Continuing losses has forced these PSUs to borrow more. Borrowings have jumped by over Rs22,500 crore in the first five months of the current fiscal to about Rs119,300 crore, thus increasing the interest burden for the companies.
It was a mixed quarter for banks with profits of some of the bigger banks getting squeezed on higher provisioning for bad loans and pension payments.
Overall, income for the banking sector grew by 32% to Rs150,358 crore in the three months period over the Rs114,177 crore in the previous corresponding period. Net profits, however, declined by 3% overall for the 39 banks in Moneylife's coverage of the sector. A quarter of the banks actually registered a decline in profits.
Yes Bank was one of the better performers with a revenue growth of 77% and a net profit growth of 38%. Kotak Mahindra also registered good revenue growth of 47%, while net profit increased by 35%. Axis Bank's income jumped by 40% and net profit was a healthy 27%.
State Bank of India, the country's top lender, recorded a second straight drop in quarterly profit on continuing provisions for bad loans and treasury losses. The bank, which together with its associates controls about a quarter of bank loans and deposits, has been aggressively making provisions recently.
Net profit dropped 46% for SBI in the first quarter ended June. In the previous quarter profit plunged 99% when provisions soared. The bank reported net interest margins (NIM) of 3.62% for the period.
Most banks have posted a drop in NIMs-a key gauge of their profitability-on higher borrowing costs. But pressure could ease in the coming quarters as lenders pass on rate rises to customers.
Banking stocks have been among the worst affected on the market over the past couple of months on account of rate rises by the RBI that have dampened credit demand.
In the financial services sector, 15 of the 42 companies tracked by Moneylife recorded a decline in net profit and five made a net loss. Brokerage firms have been struggling to do business on lower retail participation. Lower brokerage income together with the high cost of funds has impacted margins.
The past few months have been tough for brokerages on account of the fall in equity volumes on exchanges. India Infoline, Edelweiss, Emkay Global, Geojit BNP Paribas are some of the brokerages that have seen a decline in revenues by more than 10%.
Indiabulls Financial Services was one of the better performers in the financial services sector with a revenue growth of 68% and net profit jumped by 37%. The company's home loans segment has shown a steady rise and has been a major contributor (more than 70%) to asset growth q-o-q. Efficiency in operations brought down the cost to income ratio to 19% from 24% in the previous corresponding quarter.
Despite the sluggishness in the real estate market, LIC Housing Finance also registered a 40% growth in income y-o-y, while net profit increased by 21%. The company recorded a growth of 15% in individual loan disbursements to Rs3,545 crore in the first quarter, as against Rs3,392 crore in the June quarter last year. While the mortgage portfolio grew by 32%, there has been a sharp 79% drop in project loan disbursements to Rs77 crore, from Rs 373 crore in April-June period last year due to a lull in the segment.