Metal, OMCs and NBFCs lifted India Inc's earning in Q2FY18

Key Highlights:

• Banking, OMC and NBFCs best performers in net sales category in Q2FY18
• Metals, OMCs, NBFCs, auto and consumer goods were top performers in Q2FY18 earnings
• India Inc's net sales slowed down to 7% in Q2FY18

Performance of India Inc showed a mixed picture during July–September 2017 quarter (Q2FY18), with top-line (net sales) growth decelerating to 7% and bottom-line (net profit) declining to 1.5%.

Data compiled by Care Ratings revealed that a total of 1,241 companies reported net sales of over Rs 12.69 lakh crore – witnessing growth of 7% in Q2FY18 compared to growth rate of 10% in the similar period of previous fiscal where net sales stood at nearly Rs 11.86 lakh crore.

At the same time, these companies reported net profit of over Rs 1.03 lakh crore – declining by 1.5% in Q2FY18 versus positive growth rate of 13.2% in Q2Y17 where profit was at Rs 1.05 lakh crore.

Also, profit margins witnessed a contraction of 70 basis points and came in at 8.1% in Q2FY18 as against 8.9% in Q2FY17 and 8.6% Q2FY16.

Madan Sabnavis and Darshini Kansara, economists at Care Ratings, said, "Usually, the overall performance gets skewed to an extent due to the performance of banks, oil companies, IT and finance which are guided by other exogenous factors.”

Currently, banks have been suffering through non-performing assets (NPA) recognition and higher provision are being maintained for this indicator, which hampers their growth.

While, refinery/oil companies get affected by the international price of crude oil and drastic changes in the last couple of years has swung growth in net sales and net profits. IT companies tend to get affected by global factors and carry almost negligible leverage while finance companies, by virtue of their operations being distinct from other services segments.

If these three sectors are excluded from the report, India Inc's performance would have a negative picture with net sales and net profit coming at lower 4.7% and negative 4.4% compared to growth rate of the last year's 11.8% and 15.4% respectively.

However, there were few sectors which performed on year-on-year (YoY) basis easing the pain for India Inc's earnings in Q2FY18.

In terms of net sales, non-banking financial services companies took the top spot in the best performer category by recording growth rate of 14% in this quarter compared to growth rate of 7.1% in Q2FY17.

This was followed by banking sector which saw their net sales going up by 7.4% from just 2.3% in Q2FY17. Public sector banks outshined in this category with 7% sales growth rate compared to private banks whose net sales lowered to 8.2%.

During Q2FY17, PSBs registered negative performance of 2.8% in sales and private banks had positive 15% growth rate in the indicator.

Meanwhile, in terms of net profit, sectors like oil marketing companies, NBFCs, metals, automobile and consumer goods saw increase in their earnings in this quarter.

Oil-related companies posted net profit of Rs 22,389 crore – higher by 13.5% in Q2 versus Rs 19,727 crore in Q2FY17. While NBFC registered earnings of Rs 7,874 crore in Q2 up 26.4% from Rs 6,228 crore a year ago in the same period.

Consumer goods sector, both non-discretionary and discretionary, witnessed growth in their earnings at Rs 8,474 crore and Rs 700 – higher by 3.6% and 46.8% in Q2 compared to previous year's same quarter.

Metals and automobile sector in Q2 reported a net profit of Rs 5,419 crore and Rs 8,107 crore growing by 78.3% and 9.6% from numbers reported in the corresponding period of the previous year.

16 industries registered y-o-y decline in net profits during the quarter. Maximum decline was witnessed in construction and real estate, mining, paper & paper products, electric equipment, etc. Profitability of services like healthcare, hospitality and retailing were also impacted.

The duo at Care Ratings said, “Most of the industries in Q2 FY18 that have posted lower growth numbers were affected by a series of factors such as lower industrial growth in the country, limited pick-up in demand and adjustments to GST regime during the quarter.”

“Consumer industries like textiles and consumer durables which get extended to auto segment witnessed an improvement on back of release of pent up demand from the previous quarters and pre-festival demand. In case of tractors, a good monsoon in most parts of the country was a factor pushing growth,” they added