Earnings breadth of India Inc deteriorates

Earnings growth breadth of India Inc has taken a hit with close to half of the companies reporting their results showing a decline in profits in the September quarter.

Data compiled by DNA Money show that out of 490 companies (excluding banks and financials) constituting more than one-third of the market capitalisation of the BSE, which have reported their quarterly earnings, 240 have seen a drop in net profit. As a result, the net profit growth for the universe has come down to 9.2%, lowest in the last seven quarters.

“Corporate profits have been hit by higher cost pressures, be it related to raw materials and employee expenses, interest costs or forex-related losses,” said Murali Krishnan, head of institutional broking at Karvy Stock Broking.

Operating profits have seen subdued growth of 9.6% as the rise in input costs exceeded growth in revenues. While net sales have risen 24.4%, operating expenses are up 27.6%.

“As expected, the results have been muted with a few negative surprises. There have been few concerns related to the orderbook position of capital goods,” said Ajay Parmar, head of institutional research at Emkay Global Financial Services.

Sectors such as autos, non-electrical capital goods, realty, consumer durables, paints, petrochemicals and metals (steel) have been a drag on profitability.

Auto companies have seen net sales growth of just 5.7% with operating profit and net profit going down  3.9% and 7.6%, respectively.

Experts blame the rising interest rate environment for the slowdown in these sectors. Interest costs during the quarter was up 41%, which has resulted in a 130-basis-point decline in profit margins year on year to 9.5%, the lowest in last 10 quarters.