Financial Daily from THE HINDU group of publications
Sunday, Sep 29, 2002
Markets - Recommendation
April-June for Nifty cos Demand pick-up to the rescue
IN the past few quarters, Corporate India had banked on cost-cutting and savings on interest costs to boost the bottomline.
A study of the performance of the 50 companies comprising the S&P CNX Nifty index indicates a slight improvement in demand, which trickled down to the bottomline. Since most of the benefits of cost-cutting have already been reflected in the last year's performance, India Inc. did not get much help from cost-cutting for the quarter, but interest costs continued to slide downwards.
This suggests that only a strong pick up in demand can sustain the profitability growth and enhance shareholder value in the coming quarters.
The topline pick up has been more evident in the automobile and pharma companies and in a few core sector companies such as ABB, Tata Power, Tata Steel and Larsen and Toubro.
The pharma and automobile sector posted 37 per cent and 25 per cent growth in turnover respectively, while the economically-sensitive companies recorded an aggregate growth of 6.13 per cent compared to negative growth recorded in 2002.
Tata Steel benefited from the firming up of steel prices, while higher turnover for ABB and Tata Power could indicate a slight pick up in the power sector.
Cement companies edged up marginally as poor realisations played spoilt sport despite higher volume off-take.
Surprisingly, the new economy companies represented by technology and telecom took a beating in the June 2002 quarter.
Topline edged up by a marginal 2.35 per cent and, at the net level, profitability declined by 19.7 per cent.
This was primarily due to a drop in sales for MTNL, VSNL and NIIT. Barring these, the sales for the rest of the tech stocks rose by 18 per cent. FMCG companies continued to reel under pressure. The aggregate turnover inched up by a mere 0.54 per cent.
At the net level, June 2002 quarter witnessed some companies turning into profits from losses in the corresponding previous period and vice-versa.
Tata Engineering, aided by better product mix, continuous efforts to prune down costs and higher realisations returned to profitability.
For Mahindra and Mahindra, the restructuring and downsizing efforts coupled with higher offtake of the company's automotive and farm equipment aided its return to profitability.
IPCL, which recently came under the Reliance fold, slipped into the red posting a loss of Rs 6 crore as against a profit of Rs 12.67 crore in the corresponding previous quarter.
Both sales and production in terms of volume declined. It might take some time for the change in ownership to bring in the desired effect.
Swings in profitability
Wipro recorded a 5 per cent decline in profitability for the quarter, while most other top-rung tech companies posted a two-digit growth.
BHEL pruned down its losses sharply from Rs 125 crore to 49 crore helped by a strong growth in the order-book position.
Fall in tourist arrivals and occupancy rates resulted in a 29 per cent drop in the turnover, which translated into an 83 per cent drop in net for Indian Hotels.
The merger of ICICI with ICICI Bank skewed the aggregate picture to some extent.
If one ignores ICICI Bank, the top and bottomline growth for the Nifty companies stand at 7.5 per cent and 8.3 per cent respectively as against 7.2 per cent and 6.5 per cent.
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