Corporate India takes a huge hit in the June quarter, net profits decline by almost half
Increased cost, inflation and policy paralysis played havoc on Corporate India’s earnings, especially those of government companies as margins shrank by almost half despite a robust increase of 15% in sales
This first quarter earnings season has been very lacklustre so far. We now have the data of 667 companies in the Moneylife sample of 1,150 companies whose June 2012 quarterly results have come out. The aggregate sales of these companies, for the quarter ended June 2012, increased by 15%, year-on-year (y-o-y), to Rs 8,72,904.89 crore from Rs7,57,187.21 crore. Good news, right? Operating profits has fallen sharply by 17%, y-o-y, to Rs85,490.73 crore (June 2011: Rs1,03,001.29 crore). But it is net profit, or the bottomline of Corporate India, which has suffered the severest blow. Net profit plummeted by almost half, a whopping decline of 41%, led mainly by the government-owned companies. Last year net profit was Rs54,310.96 crore while this year it is much lower at Rs 32,012.67 crore. Thus, there’s a lot to worry now.
Net profit margins have shrunk. Last year, margins of Corporate India were recorded at 7.17%, but now it has declined by 3.50 percentage points (350 basis points) to 3.67%. This is a frightening fall. It is pertinent to note that over 60% of the companies (405 companies) have witnessed shrinking margins this quarter over the corresponding quarter last year, while over 80% of the 667 companies saw a boost in their sales in this quarter over the corresponding previous quarter. This shows that the increase in sales has not helped businesses and economic challenges remain. Inflation and higher cost pressures have eroded margins, putting many companies on the back-foot, in wait-and-watch mode, as government stymies policy measures to improve the economy.
Will Corporate India’s fundamentals improve or get worse?