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Global commodity-linked firms hit hard
B G Shirsat in Mumbai | February 24, 2009 10:34 IST
The poor performance of the corporate sector in the current financial year is reflected in the fact that the number of sectors posting net losses has more than doubled quarter-on-quarter -- from seven in the first quarter to 15 in second to 37 in the third quarter.
Of the 124 sectors classified by the Business Standard Research Bureau, only 80 reported net profits in the first three quarters of the previous as well as this financial year.
Appreciation of rupee saved the software services firms, which posted a decent growth in net profit despite a flat revenue growth in dollar term. Fertilisers, pesticides, paints, food products and personal care firms reported a growth in net profit on the back of increase in product prices to offset the rise in production cost.
The pressure of rising interest cost was visible in sectors such as refineries, steel, infrastructure, construction, engineering, capital goods, cement, media, metals, petrochemicals. The interest cost for the corporate sector was up by 58 per cent in the first, 80 per cent in the second and 68 per cent in the third quarter.
Automobile: Sales and net profit of auto makers declined across the board in the third quarter due to a sharp decline in volumes and lower price realisation. Hero Honda was the only exception with a 5 per cent sales growth and 9 per cent profit growth in the quarter under review. On the other hand, Tata Motors [Get Quote] reported a net loss of Rs 263 crore in the third quarter on an MTM loss of Rs 226 crore, while net profit of Mahindra & Mahindra declined to Rs 1.20 crore on an MTM loss of Rs 182 crore.
Capital goods: On an average, capital goods and engineering companies reported 20 per cent and 38 per cent growth respectively in the third quarter with Bhel and Larsen & Toubro (L&T) leading the rally. Operating margins were down for most of the companies due to a rise in other expenses as percentage of sales. For companies such as Bhel, L&T and Punj Lloyd [Get Quote], which have long lead projects, the material cost as percentage of sales was up in the third quarter.
Cement: The net profit declined in all the three quarters, while the sales growth rate slid from 17-19 per cent in the first two quarters to 13 per cent in the third quarter. The decline in operating margins in the third quarter was 700 basis points compared to a 1,000-basis point decline in the second quarter. Price realisations were marginally down in the North and flat in the West, while the same went up in the South as cement companies could not get the benefit of the correction in international coal prices. So, the energy cost continued to remain high due to inventory carryover.
Consumer goods: The rates of growth in sales and net profit of food products, personal care products and cigarette manufacturers have fallen in the third quarter compared to the first two quarters. Earnings were impacted due to higher input costs notwithstanding the correction in prices because of inventory carryover.
The fourth quarter sales and profit growth of Hindustan Unilever was lower than the first three quarters. Among others, Dabur [Get Quote], Colgate and Godrej Consumer Products [Get Quote] witnessed a strong volume growth in the third quarter.
ITC's core cigarette business did fairly well as the filter segment witnessed a continued over 20 per cent growth. However, the overall results of ITC were impacted due to higher FMCG losses and subdued performance put up by its hotel business.
Metals: Steel companies faltered on sales growth in the third quarter due to a sharp decline in steel prices during the period. JSW Steel [Get Quote] suffered recurring net losses. Operating margins declined sharply across the steel sector due to a sharp drop in metal prices without a similar drop in raw material costs. Sterlite and Nalco posted weak operating results due to a sharp fall in base metal prices and decline in byproduct realisation.