Growing pressures from rising input costs and a cooling demand landscape are squeezing Indian firms, leading to a noticeable slowdown in both earnings and revenue growth compared to recent quarters.
According to an analysis conducted by ETIG on 600 companies that reported results for the quarter ending March 31, 2012, net profit—excluding entities from the banking, financial services, oil, and gas sectors—decreased by 2.5% year-over-year. Meanwhile, revenue growth fell to 14%, marking a significant slowdown from the performance seen in recent quarters.
Notably, net profit has declined for three consecutive quarters; however, the decrease observed in this latest quarter was less severe than the 12% dip recorded in the December 2011 quarter and the astonishing 38% drop in the quarter previous to that. It is surprising to note that revenue growth had not dipped below 15% in the last few years.
In the quarter ending September 30, 2011, revenue growth experienced a decline into single-digit territory, further underscoring the challenges faced.
The earnings scorecard for March 2012 was heavily influenced by the disappointing performance of major industry players such as Reliance Industries, Bharti Airtel, Sterlite Industries, and Sesa Goa. Each of these firms reported profit decreases and faced increasing pressure on their profit margins.
Aside from a few sectors, according to the ETIG analysis, a majority of companies are struggling to transfer the rising costs to consumers. This struggle is evident in the ongoing depletion of their operating margins prior to depreciation. Operating profitability diminished for the eighth consecutive quarter, ending in March compared to one year prior.
While this figure was 200 basis points higher than in the December 2011 quarter, at 19%, it remains lower than the over-22% seen two years ago when the economy was bouncing back from the 2008-09 downturn.