The corporate earnings picture is not so bad

A Moneylife analysis of 1,099 companies shows a lot of them have increased profits, helped by lower commodity prices even though sales growth has slowed down

The 1,099 companies in the Moneylife database clocked aggregate sales of Rs11,77,846 crore when compared to Rs10,39,595 crore recorded in the same quarter last year, or 13% higher on a y-o-y basis. Both operating profit and net profit grew 32% y-o-y and 68% y-o-y, on an absolute basis, to Rs1,76,911.5 crore and Rs1,07,255.4 crore respectively. Out of the 1,099 companies, nearly half of the companies reported net profit higher than last year despite even as roughly two-thirds of the companies saw their net sales increase on a year-on-year (y-o-y) basis. This shows that companies have been able to keep cost under control even as inflation continues to worry the Reserve Bank of India (RBI) and companies.

Furthermore, a more important measure is margins. On an overall basis, operating profit margins have expanded by more than two percentage points, y-o-y, to 15.02% while net profit margins have expanded by nearly three percentage points, y-o-y, to 9.11%. This is impressive and shows that topline is not all. This also shows that companies have exuded far more cost control than before in the face of slackening demand, mainly helped my lower commodity prices. Last year, operating profits declined by 10% (when compared to September 2010). This year, however, companies have managed to grow operating profit by 32%, a significant number. Considering that global situation is far more difficult today than last year, companies have managed to do well.

If you look at the aggregate net sales and profit figures, net sales have hardly increased (only by 13% y-o-y) while profit increased by 68% y-o-y. Sales have been subdued because of lack of demand. Higher interest rates, lack of liquidity due to a hawkish stance by the Reserve Bank of India (RBI) have forced consumers to cut down on spending. Net sales slowed down even on a y-o-y basis, by seven percentage points. As demand slows down, companies are forced to cut down on capital expenditure and spend only once demand picks up. This has kept operating profit up. This is one of the cornerstones of cost management. Some companies are waiting for the opportune moment to invest, especially that raw materials are now cheaper to produce items. During difficult times, it is the only controllable variable companies can do to keep profits stable keeping in mind shareholder interests. And in this realm, they have done well, considering that RBI has taken a hawkish stance and not resorted to monetary easing nor have their done any open market operations (OMO).

Whether the third quarter results will be good is in doubt as America prepares to tackle the fiscal cliff while there seems no end in sight to the Eurozone crisis. Several Bills are due to be passed in the parliament in the winter session of the parliament, including the landmark Foreign Direct Investment (FDI) in retail and FDI in aviation, which could be game changers and possibly stimulate the market, at least in the short-term. But all this is uncertain as political wrangling continues and this could affect companies’ decision making on investment matters. Companies are on wait and watch mode and striving for consistency in cost management.

You can check out our similar analysis we’d done on previous quarters below:


Q4FY12 -

Q3FY12 -



Anil Agashe

5 years ago

Nice to know this. But I have following observations:
1. The analysis means high interest rates are not hurting companies right?
2. Cost control is done only when things are bad?
3.Sales growth of 13% is good considering the situation.
4 How much sales growth has come from volume and how much from price increases?
5. This explains the increase in indirect tax collections.

EC notice to Gujarat Congress chief for comments on Modi

The Election Commission said that Modhwadia's remarks prima facie violated Model Code of Conduct which prohibits personal attacks on the leaders of rival political parties

Ahmedabad: The Election Commission (EC) has issued a show cause notice to Gujarat Congress president Arjun Modhwadia for his reported remarks on the personal life of Chief Minister Narendra Modi and also for comparing him with animals, reports PTI. The Commission also asked him to file his reply by 24th November.
Bharatiya Janata Party (BJP) MP and state unit General Secretary Balkrishna Shukla had filed a complaint with the Commission about Modhvadia's speech in Vadodara on 2nd November when he made the controversial comments.
The Commission sent the notice to Modhwadia after listening to the CD containing his speech.
The notice said that Modhwadia's remarks prima facie violated Model Code of Conduct which prohibits personal attacks on the leaders of rival political parties.
"The Commission hereby gives notice to you to show cause as to why action should not be taken against you, for the violation of the Model Code of Conduct," said the EC notice issued yesterday and signed by its secretary Harbans Singh.
The EC has also directed Modhwadia to submit his response by 24th November and added that, "failing which it would be assumed that you have nothing to say in the matter and appropriate action will be taken against you without any further reference to you."
Modhwadia, in a public meeting on 2nd November in Vadodara, had criticised Modi for repeatedly targeting Prime Minister Manmohan Singh and also took a dig at Modi for his remarks on Sunanda Pushkar, wife of Union Minister Shashi Tharoor.
He had also compared Modi with animals in the same meeting.


SC admits Centre's review plea on info panel appointments

The apex court made it clear its verdict for appointment of people from judicial background in information commissions was not aimed at rehabilitating judges but to make information panels independent of the government's influence

New Delhi: The Supreme Court on Thursday admitted the Centre's plea to review its judgement which had stipulated that only sitting or retired chief justices of high courts or an apex court judge can head the Central and state information commissions, reports PTI.
While admitting the plea, a bench of justices AK Patnaik and Swatanter Kumar, however, made it clear its verdict for appointment of people from judicial background in information commissions was not aimed at rehabilitating judges but to make information panels independent of the government's influence.
"Idea is not to rehabilitate judges but to ensure independence of the institutions" the bench said adding "commissions must be headed by independent persons." 
The bench said the government appoint those persons in the commissions who are in its good book and asked as to how such favourites of government can pass orders against their appointing authority.
"You have to ensure that the body is independent. You find people, who are in good books of the government, are appointed. How would those person pass order against the same authority who has appointed him," the bench remarked.
"If Right to Information (RTI) is to be effectively implemented then the commissions must be headed by a person independent of all authorities," the bench said.
Agreeing to hear the Centre's review petition, the bench issued notice to Namit Sharma, on whose plea the apex court had delivered its 13th September verdict.
The Centre had moved the apex court for review of its verdict saying it is against the provisions of the Right to Information Act. 
The apex court had held in its verdict that like other quasi judicial bodies, people from judicial background should be appointed as members of the Central and state information commissions and this should be done after consulting the Chief Justice of India (CJI) and chief justices of the respective high courts.
It had directed the government to amend RTI Act for it.
"Chief Information Commissioner at the Centre or state level shall only be a person who is or has been a chief justice of the high court or a judge of the Supreme Court of India," the court had said.
The bench had passed the order on a PIL challenging sections 12 and 15 of the Right to Information Act, 2005 enumerating the qualifications needed for the appointment of members of the commissions.
The bench, however, had refused to quash the sections but asked the government to modify it so that people from judicial background are also preferred for the post.
Currently, none of the eight members of the Central Information Commission (CIC), including the Chief Information Commissioner, is from judicial background.
The CIC comprises one Chief Information Commissioner and 10 information commissioners.




5 years ago

We have a Constitution and a large-sized library of statutes which can protect almost every right a citizen could think of for a decent living. Any country should envy the tripod of legislature, executive and judiciary which was put in place to give effect to the rights, responsibilities and duties envisaged in the Indian Constitution by those who took charge of governance from the British. Though not as active as it is now, the fourth estate, the media, too has played its bit fairly well in bringing to the fore the commissions and omissions by people who have been running the government so far. Then, why results are not showing the way the framers of our Constitution visualized?

As for the hurdles faced by the different wings of the government machinery in reaching out to the people or solving problems, there is no dearth of deliberations in legislatures, reports of committees and commissions and research reports from academicians where remedies and measures for each and every problem can be found. Still, we are left with more and more unresolved issues as days pass.

The solution is, improvement in the infrastructure in government offices and placing adequate manpower in place with the needed skill there that do not have to keep their lower drawers of the table open to maintain a lifestyle expected of the position they hold. You will find secretaries in the government to the junior-most support staff in a village office compensating for the inadequately furnished, clumsy rooms without AC/fans in office going for posh, well-furnished houses with all facilities in good localities. Whether they manage it with salary or bribe, the cost is born by the tax payer. Then why not factor in a reasonably good lifestyle commensurate with the job expectations from them in their remuneration package and provide better infrastructure in their offices? In any case the debit is to taxpayer’s account. Then why not allow transparency? If this is done, they will do their job better.

Coming back to the mess in which our judicial system has landed as of now, something drastic has to be done and done quickly, if we have to avoid a breakdown. By breakdown I mean the loss of faith of common man in the judiciary. You cannot always refer to three crores of cases pending in courts (someone disputing the number, saying that, if ‘current’ cases are excluded, the number will come down to one crore!) and projecting the requirement of thirty years to clear the present arrears. They are all good for academic speeches at seminars. The immediate measures could include:

• Segregating cases which need to be decided within a year and taking them on a priority basis by the courts now in position.
• Leaving the remaining cases to new Special Courts to be put in place at all levels depending on the number of pending cases.
• Ensuring vacancies of judges are filled in time
• Making it compulsory for government and public sector organizations to expedite procedures where they are on either side of matters before courts. This is necessary as there is laxity on their side as cost and delay seldom affects the individuals who handle cases in government and public sector. This position is slowly creeping into big corporates also.
• Making necessary legislative changes to reduce procedural delays
• Simultaneous efforts to encourage concerned parties to settle issues out of court. This method would bear fruit where party on one side of the dispute is government or quasi-government organizations.

Vaibhav Dhoka

5 years ago

When our JUDICIAL system is already overburdened and they are not in a position to give TIMELY justice to crores of litigants then what is the need to encroach on other areas.The time is ripe supreme court takes up PIL on its own functioning and subordinate courts,who are already overflowing and delaying justice.And it should also take up JUDICIAL CORRUPTION at all levels thro' PIL only.

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