India Inc's margins crimped, interest costs eat into profits

Oct 28 2013, 08:17 IST
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A depreciating rupee has hurt those importing raw materials and expenses overall are up 16.2% y-o-y. A depreciating rupee has hurt those importing raw materials and expenses overall are up 16.2% y-o-y.
SummaryDull environment results in muted corporate and consumer loan growth.

India’s corporates are coping with the sharp slowdown in the economy and the adverse impact of a falling currency, but just about. While Asian Paints Ltd has beaten the Street with a handsome topline growth of 18% year-on-year, the huge losses reported for the second quarter of Rs 1,072 crore at Adani Power and of Rs 990 crore by

Jet Airways are a grim reminder that companies remain over-leveraged and are vulnerable to the vagaries of the rupee. Gross margins at Exide, for instance, were dented 115 basis points y-o-y, dragging down profit.

So, while a Tata Consultancy Services may be bagging more clients across the globe, business at home is dull. With the construction sector coming apart, demand for materials like cement is weak — UltraTech Cement Ltd’s net profit crashed 52% y-o-y while at Ambuja Cements Ltd, operating profits plunged 50% y-o-y on lower realisations, which dipped 9% y-o-y.

With Larsen & Toubro (L&T) CFO R Shankar Raman observing that the private sector seemed to have taken a breather from investing, it would appear the capex environment is yet to improve. L&T saw decent order inflows — a big chunk of it coming from overseas — and so retained its revenue guidance of 15% and order guidance of 20% for the year.

But there’s telling evidence that the economy is yet to bottom out. In an indication of how short banks are of lending opportunities, ICICI Bank’s loans to corporates grew by just 11% y-o-y in the September quarter. CEO and MD Chanda Kochhar’s observation that the bank was being choosy about who it lent to — that the corporate book will grow by just 14-15% this year — is a sign of how risk averse lenders are turning as they restructure more accounts. Mahindra & Mahindra Financial Services’ disbursements grew at just 4% — down from 32% in the first quarter — and the NBFC, which funds purchases of tractors, commercial vehicles and cars, forecasts a moderation in disbursements to the mid-teens. At Kotak Mahindra Bank Ltd, corporate loans grew by only 6% during the quarter. Analysts expect loans from HDFC to grow by a slower 17% this year compared with 20% last fiscal.

Consumer spends are tapering off — Hindustan Unilever’s volumes grew a modest

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