The slower pace of growth in net sales, a marginal rise in input cost and decline in operating margins due to pricing pressure has hurt manufacturing and services sectors (excluding oil & gas) in the quarter ended June.
The rise in sales was 18 per cent and in net profit, about 10.5 per cent. The 975 companies for which results are available with Capitaline had done much better in the preceding two quarters, with robust growth in net profit.
Operating margins for the June quarter, though down 40 basis points (bps) year on year, were up 23 bps over preceding quarters. The margins were up by 200-450 bps in the previous three quarters.
The results look weak when including the oil and gas companies. Though sales rose at a higher pace of 24 per cent, thanks to Reliance Industries, profit declined 23.5 per cent, led by net loss of Rs 6,991 crore (Rs 69.91 billion) posted by three public sector oil marketing companies.
Earlier pushers flag
However, excluding oil and gas sector from the sample, the corporate sector has signalled that profit growth in the preceding three quarters was led by the stimulus package to ailing industries and the low base year. So, the sectors which led India Inc to high profit in the previous three quarters have reported a slowing in profit growth in the quarter ended June.
Automobiles, auto ancillaries, capital goods, cement, engineering, pharmaceuticals, power, metals and steel sectors, which lifted profitability in the earlier quarters, have recorded a slowing in growth of sales and profit.
Fast moving consumer goods, fertilisers, chemicals, and construction recorded slower growth in both, while sugar companies reported net loss at aggregate levels.
For example, the net profit of steel firms were up four per cent, from over 100 per cent in the previous two quarters, while the net sales growth rate was down to 9.4 per cent from over 13 per cent.
The sales growth rate of autos came down to 35 per cent, from 45-55 per cent in the previous two quarters. The net profit growth rate was down to 29 per cent from over 100 per cent.
The cost of raw material moved up by 18.5 per cent, compared to an 18 per cent rise in net sales. The rise in raw materials significantly hurt automobiles, chemicals, paints, sugar and tyres.
However, capital goods, engineering, pharmaceuticals, fertilisers and metal companies could withstand the cost pressure by improving efficiency and higher price realisation.
The industry leaders from manufacturing sectors felt the growth pressure. Reporting slower growth in sales and profits compared to the previous two to three quarters were Steel Authority of India, JSW Steel and Sterlite from the metal pack; Maruti Suzuki, Mahindra & Mahindra, Hero Honda and Bajaj from automobiles; Larsen & Toubro and BHEL from the engineering and capital goods sector; and Hindustan Unilever and ITC from FMCG.
Among the sector leaders, Steel Authority of India, Maruti Suzuki, Hero Honda and Hindustan Unilever reported decline in net profit compared to three previous quarters.
Net profit growth rate slowed for ITC, Bajaj Auto, Mahindra & Mahindra and JSW Steel compared to the previous three quarters. ACC and UltraTech Cement reported decline in sales and profit, while Ambuja Cement reported slower growth in net profit.
