The Hindu Business Line : India Inc earnings grow at slower pace in Dec quarter

BL Research Bureau Is the corporate earnings juggernaut beginning to lose steam? The December 2007 quarter numbers of over 1,500 companies seems to suggest that. Not only did earnings growth flag significantly; nearly a third of the companies reported a decline in profit numbers, compared to the same quarter of 2006.

Corporate India, for the second consecutive quarter, has reported a slower growth in both revenues as well as profits. On an average, companies notched up a 19-per cent growth in profits on the back of a 19-per cent growth in revenues for the quarter. The same quarter last year had seen a 56-per cent growth in profits with a 30-per cent rise in revenues.

A total of 489 companies (32 per cent) reported profit declines this quarter, up from 409 (27 per cent) last year.

On a sequential basis too, the overall numbers suggest a weakening trend. While revenues grew by about 7 per cent, earnings grew by 3 per cent only. This is lowest over the past four quarters. This is in contrast to September’s scorecard, when despite a slowdown in earnings growth on a year-on-year basis, India Inc had notched a higher growth sequentially.

‘Other income’ track

Increased contribution of ‘other income’ and lower growth in profits from operations are other disquieting trends. ‘Other income’ grew by a whopping 82 per cent and contributed to 7 per cent of the total income , compared to 4.7 per cent last year.

While increase in forex gains and treasury income (due to higher interest rates) may have inflated the ‘other income’, it also brings to the fore the deterioration in the quality of corporate earnings. Increase in interest cost (44.7 per cent growth), to some extent, also eclipsed earnings growth.

Operating margins, however, continued to expand, increasing by 1.2 percentage points to about 27 per cent. Net profit margins (12.1 per cent), however, remained flat, due to higher interest costs. The quarter’s performance nonetheless has to be seen in the light of a higher base and factors such as the US slowdown and rupee appreciation, which have impacted the earnings of exporters.

Divergence in earnings between companies and sectors is, however, a trend that bears watching.

Related Stories:
Earnings growth slows down in Sept quarter
Sept quarter: Profit growth slows, but still healthy
Earnings of Sensex cos grow 35% in June quarter

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