The Hindu Business Line : Earnings performance for Oct-Dec 2003

CORPORATE India is shining - that is what the earnings card for the latest quarter suggests. Firm commodity prices, buoyant automobile sales and the pick-up in expansion and replacement demand lead to a 40 per cent rise in earnings for 1,000 companies studied. Unlike previous quarters, there was only a moderate 6 per cent rise in other income, indicating the improvement in the quality of earnings.

The sector-wise numbers show that, barring pharma, the earnings growth was impressive for most sectors. Commodity, power and engineering lead the pack. The automobile growth story continued into the third quarter. Tractor sales, which were lagging behind, too picked up in the quarter ending December as the effect of good monsoons started to show.

Riding piggyback on the domestic automobile growth and the outsourcing opportunity, the auto-ancillary industry posted an average 30 per cent earnings growth. Rising input costs and pricing pressure, however, started to show on the bottomline of a few auto component players such as Sundaram Clayton and Sundaram Brake Lining. Rising input costs impacted the profitability of tyre companies too.

Engineering companies have not had it so good for a long time. Across the board, engineering companies showed impressive topline and bottom line growth. Apart from the opportunities thrown up by the domestic construction and power sector, rising exports too resulted in an overall 22 per cent revenue growth. Despite the rise in steel prices, a profit growth of 50 per cent suggests that most companies have been able to pass on the increase in steel prices or have combated it with rigorous cost cutting measures.

It was a mixed bag for banking and cement companies. In the cement sector, except for Madras Cements and Chettinad Cements, which predominantly catered to markets in Tamil Nadu and Kerala, the rest such as Gujarat Ambuja and Grasim showed moderate profit growth reflecting pricing pressure.

In the financial sector, housing boom continued to swell the kitty of the housing finance companies such as HDFC and CanFin Homes. Banking companies, for the first time started to feel the pinch of the decline in treasury income. Earnings declined for a few such as Andhra Bank and Corporation Bank. Others such as Oriental Bank, Bank of Baroda and Canara Bank managed to overcome the lower treasury income and posted impressive earnings growth.

The pharma bigwigs, Dr Reddy's and Ranbaxy, showed a decline in profits. Earnings have, however, more than doubled for mid-cap pharma companies such as Aurobindo Pharma, Granules India and FDC.