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India Inc.: Facing the music

Feb 16, 2002

Another earning season came to a close. But unlike the last season, which led to sharp spurt in sentiment, the recently concluded December '01 quarter was a wet blanket. Having said that, the run on the bourses towards close of 2001 could have prempted results from positively impacting sentiment.        India Inc.: Challenging times

(Rs m) Dec '00* Dec '01* % change
BPCL 1,136 719 -36.7%
HPCL 3,384 608 -82.0%
RPL 4,080 4,020 -1.5%
L&T 333 545 63.7%
ACC 146 169 15.8%
Hindalco 1,651 1,655 0.2%
Sterlite 376 363 -3.5%
Tisco 1,276 346 -72.9%
Tata Power 1,020 1,080 5.9%
BSES 769 868 12.9%
BHEL (1,980) 802 -140.5%
RIL 6,840 8,220 20.2%
SBI 1,508 1,581 4.8%
HDFC Bank 528 755 43.0%
Corporation Bank 830 915 10.2%
Telco (1,214) (555)-54.3%
Hero Honda 702 1,332 89.7%
Bajaj Auto 282 1,082 283.7%
Punjab Tractors 358 266 -25.7%
MTNL 4,766 3,280 -31.2%
VSNL 4,002 3,572 -10.7%
EIH 277 30 -89.2%
Asian Paints 257 343 33.5%
HLL 4,287 4,364 1.8%
Nestle 379 527 39.1%
Infosys 1,663 2,060 23.9%
Wipro 1,888 2,223 17.7%
Satyam 876 1,194 36.3%
Dr. Reddy 344 1,615 369.5%
Ranbaxy 483 503 4.1%
Cipla 535 627 17.2%
Glaxo 153 181 18.3%
Total 41,935 45,290 8.0%

While a run on the bourses could have led to build up of expectations, the performance of India Inc. was nothing to write home about. Taking key representative companies, sample of 32 stocks, from a cross section of industries shows that aggregate post tax profits for the quarter ended December '01 grew by only 8% YoY. This is almost half the post-tax profit growth registered during the September '01 quarter. The decline in profit growth could indicate that the Indian economy continued to bottom over the concerned period, which led to a challenging operating environment. The performance seems to be in line with market expectations.

We had mentioned that Corporate India is likely to have another challenging quarter (December '01). Much of the slowdown gripping the economy came into play largely in the fourth quarter of the previous fiscal. Therefore, the YoY effect was likely to influence performance with the effect being nullified in the current quarter.

The laggards for the concerned period are largely unchanged compared to the September '01 quarter. Metals, petroleum and hospitality were sectors that disappointed the markets. The commodity sectors were considerably impacted, as global demand dried up post September '11. Not only were export sales affected but also the decline in commodity prices led to pressure on realisations, which reflected on the operating margins of these companies. Hospitality sector could not have it worse. The economic downturn was already telling on these companies and then came the terrorist attacks on the WTC. Tourist travel came to an instant freeze, which impacted the topline directly. To boost occupancy and revenues, domestic hospitality companies offered significant discounts, which had a deleterious effect on margins & bottomline. That said, the industry, as per reports, seems to have bottomed out with occupancy improving over January '02. Sectors that performed well were cement, pharma and technology, which is similar to the preceding quarter. Several players in the technology sector have lowered revenue guidance going ahead. This indicates that the storm clouds have not yet passed through.

With Government stepping on the gas with respect to disinvestments and second generation reforms, market sentiment has been re-invigorated. Also, with budget round the corner expectations seem to be building up. Over the past fortnight confidence in Government functioning has improved dramatically. From the bottoms in September '01 the market has climbed 1,000 points or 38.5%. Technically, the tone seems to be bullish with resistance at 3,700-3,750 levels.

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