SBI results show India Inc far from ready
Even if it is the lean season, the fact that advances at the State Bank of India (SBI) dropped sequentially to R10.08 lakh crore at the end of the June quarter from R10.3 lakh crore at the end of the March quarter can’t but be disheartening. In fact, with the retail and agricultural portfolios having grown, it is the corporate book that has shrunk, indicating how sluggish a state the economy is in. The offtake of non-food credit has been subdued, growing at just about 14% or so, and ties in with ICICI Bank CEO Chanda Kochhar’s observation that banks will see demand for project loans picking up only after a few quarters. Not surprisingly, order books at capital goods firms remain depressed—at L&T, for instance, local orders were anaemic but were offset by a chunk of overseas orders comprising 44% of the total; even with this, however, the increase in total orders at 11% yoy was below the guidance of 15%. Orders at Thermax fell 69% while at Kalpataru Power they were down 75% yoy. Which is why, looking at the aggregate results for India Inc might not give one a sense of the true state of affairs because they mask much of the pain; for a sample of 1,175 companies, net sales are up a reasonably good 13% but operating profits up 18% because expenditure has been reined in growing at just 12%. If the rise in the net profits seems, it is because they have been bumped up by a 28% jump in other income. Also, much of the improvement can be attributed to IT and telecom firms; without these, the performance is far more subdued. Moreover, depreciation has been flat at 10% for the last two quarters, down from 17% in the September quarter; not encouraging.
Indeed, the fact that banks’ books have grown only modestly suggests little momentum in the economy; at Bank of Baroda, loan growth moderated to 19% yoy from 21% yoy in the previous quarter. Core sectors such as construction remain weak as was seen in Reliance Infrastructure’s results where consolidated revenues fell 24% yoy and EPC revenues a steep 65% yoy.
Unless the economy picks up, the news from the consumer goods space could get worse; while a few players like Hindustan Unilever did well to report a 5% rise in adjusted volumes in Q1FY15, most others suffered because of slowing spends and increased downtrading. ITC’s FMCG business, for instance, decelerated resulting in a marginal EBIT loss. So while the results might seem good in some sectors—especially those that are benefiting from a weaker currency—the fact is the core remains weak. The capex cycle needs to turn, and turn fast.