With Maruti, Bharti, HUL and Idea all beating the Street, the mood in corporate India, if not actually, upbeat, is certainly better than it was a few months ago. There is, however, some despondency that goes with the realisation that the core of the economy remains in deep trouble; from Larsen &Toubro to NTPC and Ultratech to Sesa Sterlite, large chunks of industry continue to find the going tough.
Indeed, the headline numbers for Q1FY15 mask much of the underlying pain — for a sample of 749 companies, revenues rose 14.5% , driving up operating margins by about 80 basis points — and should be read together with the by and large cautious management commentary. ICICI Bank’s CEO Chanda Kochhar’s observation that credit demand for new projects is still a few quarters away, pretty much sums up the situation; with corporate loans at the country’s second-largest lender having increased by just 8% y-o-y in the three months to June, it’s evident demand is dull and companies are not rushing to expand capacities.
Net profits may have risen a good 24% y-o-y but a good part of this comes from IT and telecom firms. The results of engineering heavyweight Larsen & Toubro reflect the weakness in the home market; local orders were anaemic but were offset by a chunk of overseas orders comprising 44% of the total; even with this, however, the increase in total orders at 11% y-o-y, was below the guidance of 15%.Orders at Thermax fell 69%.
Sesa Sterlite reported a sequential fall in ebitda of 16% y-o-y, way below estimates, due to a fall in the production of zinc. NTPC’s operating profits were lower 23% y-o-y while net profits fell 13% y-o-y. Construction activity remains sluggish as was seen in Reliance Infrastructure’s results where consolidated revenues fell 24% y-o-y with EPC revenues dropping 65% y-o-y.
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The results from the consumer space are mixed; HUL’s was a great show in a challenging environment with the top line growing at nearly three times the market rate. But consumer spends appear to be moderating; managements say the growth in both volume and value slowed across segments with value growth slipping to 4% y-o-y in 1QFY15. ITC’s FMCG business, for instance, decelerated resulting in a marginal EBIT loss. The fact that sachets and smaller packs grew better than larger packs reflected how