The Hindu Business Line : The boosters and the downers

While strong demand from the infrastructure sector and the general economic buoyancy helped certain companies boost India Inc's performance over the quarter, others, hit by margin pressures and commodity uncertainties, have been the blots on the scorecard.

Key sectors such as cement, metals, software, auto ancillaries and capital goods contributed to the robust performance of Corporate India in the April-June 2006-07 quarter. In contrast, other sectors such as textiles, pharma, power, shipping and fertilisers have turned in a relatively mixed show.

The sectors that sparkled...

Cement: Aided by strong demand from infrastructure, cement majors put up a stellar show in the April-June quarter, with a 135 per cent rise in post-tax earnings on a 35 per cent growth in revenues.

With volumes from the northern and southern regions remaining firm, price realisations moving up and better operating efficiencies, producers improved their operating profit margins (OPMs) sharply.

This is all the more creditable as it follows three straight quarters of 15-20 per cent revenue growth. Some of the cement majors that performed really well are Gujarat Ambuja Cements, India Cements, Madras Cements, Birla Corp and Shree Cement.

These trends have spurred further consolidation activity within the sector, with international major Heidelberg Cement acquiring a controlling equity stake in the S. K. Birla-controlled Mysore Cements.

While the demand for commercial construction is likely to remain robust, the impact of housing loan rate hikes on the quasi-commercial and residential space will be watched carefully.

Metals: The sharp uptrend in international prices of non-ferrous metals such as aluminium, copper and zinc, aided by good volume growth, has helped metals companies post strong earning numbers in the latest quarter. They recorded a 160 per cent rise in post-tax earnings on a 95 per cent growth in revenues.

With better control over costs, the OPMs have expanded by 6 percentage points to 38 per cent over the same period in the previous year. While Hindustan Zinc and Sterlite Industries were the stars in this space, Hindalco and National Aluminium have also turned in a good show.

Capital goods: Reflecting the economic buoyancy, the entire gamut of companies, from capital goods and engineering to power equipment, registered a 38 per cent rise in revenues, a 54 per cent increase in operating profits and an 81 per cent growth in post-tax earnings.

The OPMs perked up by about 1.3 percentage points to 13 per cent in the latest quarter, despite rising input costs. The heavyweights in this segment, such as BHEL, Siemens and ABB, apart from a host of emerging large-caps and mid-caps such as Thermax, Cummins India, Areva T&D, Crompton Greaves and Kirloskar Oil Engines, recorded a 40-80 per cent growth in operating profits, with a couple exceeding 200 per cent.

Apart from these, sectors such as software, telecom, sugar, breweries and auto ancillaries put up a strong show.

... and the mixed fare

Pharmaceuticals: Relatively, the pharma pack put up a decent show, with a 17 per cent rise in revenues accompanied by a 25 per cent growth in post-tax earnings. But the earnings record is a mixed one between domestic companies and multinationals.

Domestic pharma companies such as Dr Reddy's, Matrix Labs, Cipla, Glenmark Pharma and Ranbaxy Labs notched up an impressive 35-70 per cent growth in operating profits, while multinationals such as Aventis Pharma, Glaxo Smithkline, Wyeth and Merck turned in a disappointing show.

Since these companies are dependent on domestic market for revenues, they were affected by unfavourable year-on-year comparisons (on account of sales spillover due to value added tax last year).

Others: Other key sectors such as textiles (with select companies doing badly), automobiles (margin pressures surfacing, especially for two-wheelers) and shipping (on account of relatively softer freight rates and higher bunker prices) turned in a mixed fare.

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