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:
Previous day’s low on the Nifty continues to be the crucial level to watch
The market, which was in the green for a major part of today’s session, pared part of its gains in late trade on profit booking. Yesterday we mentioned that a close above 5,640 on the Nifty may add strength to this weak upmove. Today although the index managed to cross this level it ended a bit lower. A strong close above 5,655 may bring more momentum to the uptrend, however, a previous day low on the Nifty continues to be the crucial level to watch. The National Stock Exchange (NSE) saw a volume 53.12 crore shares and an advance decline ratio of 749:677.
The new norms will enable the cash-rich LIC, which invests around Rs50,000-Rs60,000 crore in equity annually, to pick up higher equity in state-owned companies during the disinvestment process
New Delhi: Hard pressed to meet the Rs30,000 crore disinvestment target, the Finance Ministry has permitted state-owned Life Insurance Corp of India (LIC) to invest up to 30% in a company as against the earlier ceiling of 10%, reports PTI.
"LIC can invest up to 30% of a company's paid-up capital. Earlier it could invest up to 10%," Financial Services Secretary DK Mittal told reporters.
The notification relaxing investment norms for LIC has been issued, he added.
The new norms will enable the cash-rich LIC, which invests around Rs50,000-Rs60,000 crore in equity annually, to pick up higher equity in state-owned companies during the disinvestment process.
The Insurance Regulatory and Development Authority (IRDA), however, was against LIC picking up more than 10% equity in a company. It wanted LIC to stick to the norms applicable for private insurers.
The government's decision is apparently aimed at pushing through the disinvestment process which had so far remained a non-starter.
The government in the budget for 2012-13 had proposed to raise Rs30,000 crore from stake sale in public sector units (PSUs).
Finance Minister P Chidambaram in a recent interview to PTI had expressed the confidence that government would endeavour to be as near the target as possible.
The government proposes to sell equity in several state-owned companies like Nalco, Hindustan Copper, SAIL, BHEL, MMTC and Oil India Ltd (OIL). It is also planning to sell residual equity in companies privatised earlier.
In view of the subdued tax collection and subdued revenue realisation, the Finance Ministry had raised the fiscal deficit target for the current fiscal to 5.3% of the Gross Domestic Product (GDP) from 5.1% estimated earlier.