Lesser Profits & losses as well

The tide for Indian firms seems to be turning. As much as 41 per cent of companies announcing their second-quarter results have registered a drop in profit.

From the sample size of 657 companies, 218 firms have shown a drop in profit, while 51 firms reported losses against profits in the corresponding quarter of the previous year.

The net profit of 218 firms dropped 30.5 per cent and net sales rose at a slower pace of 17.7 per cent. In contrast, these firms saw net profit growth of 19.23 per cent on net sales growth of 18.69 per cent for the quarter ending September 2007.

Apart from slower sales growth in sales, rising input costs seem to have narrowed the operating margins of these 218 companies fully 592 basis points from 21.25 per cent in the quarter ending September 2007 to 15.33 per cent in the same quarter of 2008.

Companies reporting losses in the second quarter have registered a combined loss of Rs 669 crore against Rs 724 crore in the corresponding quarter of the previous year — and a net profit of Rs 734 crore in the first quarter of the current fiscal year.

Most of this quarter’s loss-makers are firms in sectors like automobiles, cement, metals, the media, capital goods and fertilisers, which were hard hit by rising input costs that could not be offset by price increases.

Ambuja Cement, Hindustan Zinc, Grasim Industries and Bharat Heavy Electricals are among the heavyweights that have suffered on account of rising input costs.

Ambuja Cement, now part of the Holcim group, admitted that its performance was affected mainly due to rise in the cost of coal, freight and fly ash. The firm was unable to pass on the higher costs to consumers under pressure from the government, which was attempting to rein in a sharp rise in inflation.

Power and fuel costs, which increased a steep 35 per cent, seemed to have contributed the most to the margin contraction.

Hindustan Zinc was affected by a decline in zinc and lead prices by around 40 per cent each on the London Metal Exchange. At the same time, mining and manufacturing expenses rose from 14.3 per cent of revenues in the second quarter of previous year to 29.4 per cent this year due to a sharp increase in power and fuel costs, mainly because the company imports thermal coal on a spot basis.

Overseas debt, mostly external commercial borrowing (ECBs), foreign currency convertible bonds (FCCBs) and hedging of export revenue and dollar are among some other factors that have hurt companies like JSW Steel, Maruti Suzuki, GTL, Jubilant Organosys, Wockhardt and Cipla, among others.

JSW Steel had to set aside Rs. 268.35 crore for exchange loss on account of the depreciation of the rupee against various foreign currencies. Finolex suffered forex and derivative losses of Rs 59.1 crore and commodity hedging related losses of Rs 1.9 crore primarily for importing raw material.

Wockhardt provisioned Rs 55.32 crore for currency rate fluctuation and Rs 1.09 crore for interest rate derivative losses.

HT Media, which registered an 18 per cent rise in net sales, saw its net profit decline 49 per cent due to high raw material costs, including higher newsprint prices and also because of a jump in advertising costs. The media company stepped up advertisements to promote its Delhi edition.

Chennai Petroleum reported a loss of Rs 100 crore on account of weak refining margins of $1.7 per barrel. The refiner also suffered losses of Rs 190 crore on crude purchases and lower refinery throughput of 2.3 MMT compared with a run-rate of 2.7 MMT on account of a maintenance shutdown.

Jubilant Organosys reported net loss of Rs 69.57 crore, having set aside Rs 174.19 crore for FCCB-related exchange losses and other cash charges.