Steel, bank results cloud corporate performance

The poor performance of many companies in the steel, cement, textiles andbanking marred the otherwise good performance of the corporate sector. Even some pharma companies came out with poor profits. SAIL, Essar Steel and Century Textiles led the losers’ bandwagon. Notwithstanding this continuing poor performance of many sectors, experts are optimistic about the recovery.

“Economic recovery is expected to gather momentum and this should augur well for corporate earnings in the medium term,” said an analyst with DSP Merrill Lynch.

Posing a question mark to the recovery theory, steel companies are reeling under huge losses. With margins under pressure and demand failing to pick up, government-owned SAIL posted a loss of Rs 1,348 crore in the first half of the fiscal as against a loss of Rs 617 crore in the same period of last year. Essar Steel created a record of sorts by making a loss of Rs 279.51 crore as against Rs 106.22 crore last year. TISCO announced a drop in net profit for the six months to Rs 90.18 crore from Rs 96.32 crore a year earlier, despite an 11 per cent risein net sales to Rs 3,135 crore. Steel analysts say higher interest costs and depreciation charges may have been behind the drop in net profit.

The situation in the cement sector is similar. Many cement companies have reported a fall in profits. ACC net profit plummeted by 86 per cent to just Rs 1.67 per cent in the first half of the year. In textiles, many companies came out with poor results. Century Textiles, the BK Birla group company, has plunged deeper into the red with its net loss mounting to Rs 29.48 crore during the second quarter of the current financial year, as against a loss of Rs 24.77 crore in the same period of the last year. “The profitability of the company during the second quarter has been adversely affected due to the general economic slowdown and recession. While the costs have been increasing, the selling price, particularly of cement and viscose filament yarn, have not perceptibly improved," the company explained.

In the banking sector, State Bank of India the largest commercialbank in the country witnessed an 18 per cent fall in net profit to Rs 702 crore. This follows a rise in non-performing assets (NPAs) of the bank. NPAs also ate into the profits of IDBI. The leading financial institution saw its net profit fall by 30 per cent to Rs 494 crore in the first half of the year.

“Most of the manufacturing sectors are showing turnaround. We also expect a rise in profits in the second half,” SBI chairman GG Vaidya said.

On the other hand, leading firms like Reliance Industries, ITC, Grasim, Hindalco and Hindustan Lever came out with encouraging performance.

Reliance, the largest private sector company, beat analysts expectations by posting a 28 per cent growth in second quarter net profit to Rs 612 crore.

Diversified company Grasim, belonging to the Aditya Birla group, showed an 83 per cent rise in net profit while Hindalco registered a modest 10 per cent growth in profit. Announcing the half-yearly results recently, RIL managing director Anil Ambani said recordproduction volumes, domestic demand growth and improved environment for the petrochemical business in the Asia-pacific region were the key drivers for the increase in the bottomline.

The pharma sector earnings were mixed. Dr Reddy’s Laboratories, which was hurt by lower bulk drug prices, competition and lower exports, announced a 29 per cent drop in net profit. Smithkline Pharma reported a 53 per cent drop in profit as the company was hit by government-controlled price reductions and customs duty. However, others like Hoechst, Wockhardt and Cheminor Drugs made handsome profits.

Driving out of the bumpy path of recession, many automobile companies fared better. Tata group flagship Telco, buoyed by a recovery in the commercial vehicle segment and other income’ component of Rs 95.96 crore, turned the corner with a net profit of Rs 33.95 crore during the second quarter of the current fiscal. The automobile major had reported a loss of Rs 18.84 crore in the corresponding period last year. Telco’s rival in theautomobile market, Leyland also came out of the red in the second quarter.

“The rise in profits is noteworthy as they come after nearly two years of decline. Multinationals have out performed all other ownership groups in terms of the rise in profits,” said CMIE. The industrial sector continued on the recovery path with the IIP recording a six per cent rise in the first five months of the current fiscal.

But the million dollar question still remains: Will the recovery continue? With the government taking the reform process seriously and domestic demand improving, industry captains feel the second half of the year will be better. The new millennium holds out better prospects for the corporate sector.