Sales didn’t grow at all and net profits barely budged in the quarter ended June 30, going by the initial set of company results.
Net sales for 310 companies in this quarter grew just 1.5 per cent over the year-ago period. Cheaper inputs helped operating profits grow by 5.3 per cent for the period.
Sluggish sales
Banks and financial companies are excluded from this analysis as their revenue and cost structure are different.
The 1.5 per cent sales growth is sharply below the 6.7 and 11.4 per cent seen in the March 2013 and December 2012 quarters. Sectors such as power, steel, construction and infrastructure, chemicals, auto, capital goods and metals steadily lost momentum over the past three quarters.
Ashok Leyland, Larsen & Toubro, Reliance Industries and Thermax are some of the companies that have seen subdued sales.
Those that have held on to double-digit growth despite the slowdown were fast-moving consumer goods, pharmaceutical, petrochemical and software companies. Sectors, such as paints and agro chemicals, managed to perk up in the June quarter following tough quarters earlier.
Costs help
Raw material prices have been steadily turning cheaper over the course of the past five quarters. The share of input costs to total sales fell to 51 per cent in the June 2013 quarter from the 55 per cent in the year-ago period.
Cheaper steel, for instance, came to the aid of automobile companies even as sales slowed.
The raw materials to sales ratio dropped sharply in the June quarter for Bajaj Auto and Maruti Suzuki. Paints, metals, pharmaceuticals, capital goods and realty companies too gained from low prices.
But companies paid more to their workforce, as staff costs shot up 16 per cent in the June 2013 quarter over the year-ago period. Operating margins stood at 16 per cent for the quarter, up only slightly from 15.3 per cent.
Interest outgo, too, was up by a sharp 13 per cent, resulting in a 2.7 per cent net profit growth for the June 2013 quarter.
In contrast, the December 2012 quarter had net profits jumping 17 per cent.
With the rupee now weakening, input costs may rise. Interest rates don’t seem to be heading down either, suggesting that profits may start to shrink.
Though the picture may change as more companies declare their results, sales growth is unlikely to improve significantly.