/India Inc's top line grows, but margins take a hit on expenses

India Inc's top line grows, but margins take a hit on expenses

India Inc reported steady progress in revenue and net profit growth for the March 2017 quarter albeit with marginal pressure on operating profitability. Though the number of companies that reported net loss was the highest in four quarters, analysts expect gradual improvement to continue in the coming quarters in a benign interest rate regime and expectations of good monsoon.

The aggregate net profit of a sample of 1,882 companies excluding banks, finance, oil and gas companies, reported 14.5% year-on-year growth in net profit. It was the third consecutive quarter of double-digit growth. Profit growth has been gradually rising in the last three quarters.

Revenue increased to 4.5% for the second quarter in a row of accelerated growth. The ET Intelligence Group had estimated a similar trend in revenue and net profit for a sample of Nifty 50 companies at the beginning of the results season in April.

“Barring IT, most other sectors have met expectations. Essentially, the trend of de-growth in earnings that we had seen a few quarters ago has clearly come off,” said Nitasha Shankar, head of research, YES Securities. She added that management commentaries were also more optimistic against what they were a few quarters ago.

Operating margin of the sample, however, was at four quarter low following marginal increase in operating expenses. Margin fell by 10 basis points sequentially and 30 basis points year-on-year to 16%. It also indicates companies are finding it difficult to retain margins in a quest to grow toplines. After considering the performance of oil and gas companies, the sample –now with 1,910 companies — reported revenue growth of 9.6% and net profit increase of 13.6%. For the entire sample of 2,290 companies including banking, finance, and oil and gas companies, revenue grew 9% year-on-year and net profit shot up 32.4%.

Despite accelerating sales and profit, the number of companies reporting losses has not yet shown signs of abating. For the entire sample, 678 reported losses in the March quarter from 676 in the previous quarter and 658 a year ago. This is largely on account of the banking sector. Excluding banks, finance, and oil and gas companies, the number of loss making companies fell to 545 from 553 a quarter ago and 573 a year ago.

In the coming quarters, analysts expect a further improvement in the performance of Indian companies. YES Securities’ Shankar expects a doubledigit growth for FY18 considering the government’s pro-reform focus, low interest rates, reviving rural consumption and the 7th Pay Commission payouts.

“We expect earnings to grow in the range of 15-18%,” she said. Sectors including automobiles, fast moving consumer goods (FMCG), and metals showed buoyant performance whereas information technology (IT), pharmaceuticals, and telecoms were subdued. Within sectors, the March quarter performance was a mixed bag. In addition, stressed sectors including banking, capital goods, and power continued to report subdued performance.

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Markets-The Economic Times