INDIA Inc’s earnings for the March quarter appear to be in recovery mode, with bottomline growth better than the past three quarters as companies benefited from lower input costs and slower rise in interest expenses.
Net profits for a sample of 763 companies (excluding banks and financial institutions) were up 57.35% y-o-y compared to the 19.59% rise seen in the third quarter of FY14. However, the bottomline was boosted by exceptional items that led to a sharp rise in net profit at Tata Steel and Adani Power, excluding which net profit growth moderates to 18.37% – still the best in the last four quarters.
Tata Steel's net profit in the March quarter stood at R1,036 crore compared to a loss of Rs 6,529 crore in Q4FY13 on account of exceptional charges related to impairment recognition on some of its steel assets in Europe and Thailand. Similarly, Adani Power, which recognised R1,842 crore of revenues in view of the CERC order granting compensatory tariff, also reported a profit of R2,850 crore compared to a loss of R426.57 crore in the corresponding quarter of the previous fiscal.
It took Reliance Retail seven years of losses and over $1 bn in investments to find a formula that works for India.
The bottomlines seem to have received support from lower tax expenses reported by corporate India, which fell 10.60% on account of several companies writing back additional taxes they paid earlier. Also, interest costs as a percentage of operating profit at 18.42% stood at the lowest in last six quarters while raw material costs as a percentage of net sales were the lowest in last three quarters at 46.75%.
However, earnings still continue to be driven by export-oriented companies with four IT majors —TCS, Infosys, Wipro and HCL Technologies — together reporting 47.7% growth in net profit. Excluding them, along with Tata Steel and Adani Power from the sample, net profit growth declines to 11.01%.
Tech Mahindra, just like its software counterparts, delivered a strong performance with revenues rising 34.3% y-o-y and Ebitda increasing 39% on the back of 70-bps y-o-y improvement in operating margin.
Sales growth, which recovered to 15.31% from 12-13% in the preceding quarter, remained subdued due to the overall slowdown.
With retail inflation steadily remaining over 8%, urban consumers continued to remain tight-fisted. While Asian Paints outperformed expectations with domestic