Corporates manage bottom line growth, future uncertain: Assocham

23 July, 2012

Corporates managed to hold onto growth both in net profits and total income in the first quarter of the current financial year, braving a negative perception about the economy that arose out of slowdown in GDP in the last financial year.

AS PER the balance-sheet analysis of companies across different sectors like financial services, information technology and automobile sectors, conducted by the industry body Assocham, the companies have managed to handle the slowdown differently.

Taking the averages would not be a correct analysis since the margins of growth are quite wide. In some cases, there has been a decline in net profit and sales growth, but it remains among the few players even though some big wigs have shown decline in profits.

While the export driven IT sector generally did well, thanks to a sharp depreciation in the rupee value against the dollar, others like the automobile held onto growth by resorting to operational efficiencies and giving a push to their marketing to keep the momentum growing. However, the growth in automobile sector has largely come from the two-wheeler segments.

For instance, the average net profit growth in the IT companies which have so far announced their first quarter results for the current fiscal , ranges between 25 per cent and 30 per cent, which is a good going given the slowdown in the US economy and recession in several European economies.

Likewise, the firms which draw bulk of their revenue through export of services to the US markets managed an expansion in their top line by around 20-25 per cent in rupee terms since depreciation in the local currency meant higher turnover in their balance sheet measured in rupee. In dollar terms, however, the scenario is not very impressive.

“While it goes to the credit of corporate India to hold on their bottom line, though at a lower pace, it would be risky to assume that they will manage to do well in the future as headwinds are growing stronger,” said Assocham's President Rajkumar Dhoot.

The first quarter (Q1) results showed that the automobile sector is coming under pressure to keep their growth both in the net profits and total sales. While results of the major car manufacturers are yet to come in, the two-wheelers have managed to hold on to growth.

“As petrol prices tend to move up and interest rates stay upward, some shifting of preference is visible in favour of two-wheelers from cars. We do not expect car manufacturers to post as good results as the two-wheelers have done. The car sales and profit margins have been facing pressure owing to slowdown in sales volume and the companies being forced to come out with heavy discounts,” the survey pointed out.

While a few of the private sector banks have posted good numbers in terms of net profits, the listed public sector banks may not do as well. The main area of concern, as per the advance estimates plotted by Assocham is the increasing non-performing assets.

The Rain God has also been less than kind this year raising concern over demand for industrial goods and services from the rural economy.

“The RBI seems to be obsessed with the inflation, but as we have been maintaining it is not the core inflation which has gone up, It is the food inflation which should not set the tone for the interest rates”, added Assocham in a statement.