Looking for green shoots PDF Print E-mail
Monday, 03 June 2013 00:00
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Shobhana's edit


The most telling comment on the state of Indian industry came from L&T chairman AM Naik who recently said he didn’t see the capex cycle turning this year; indeed, the engineering major surprised analysts when it announced it had excluded R17,000 crore worth of business from its order book as a matter of prudence. With companies in no hurry to add to capacity—Pawan Goenka of Mahindra said last Thursday that his firm would be pushing back capacity expansion plans by 6-8 months—a host of Indian companies are likely to be writing off orders soon. Indeed, there is a fair chance Indian industry might grow slower than it is growing right now; for the three months to March 2013, revenues for a sample of 1,909 companies (excluding banks and financials) rose just 5.66% yoy, compared with 9.4% in Q3 and 11.9% in Q2. How sluggish overall demand is can be gauged from the 43% yoy fall in heavy truck volumes at Tata Motors which drove down domestic sales by 32.5%. With big manufacturers unable to grow the business, vendors like Bharat Forge are in deeper trouble—the management has indicated that it has visibility for barely one quarter. Most companies have no pricing power; lower-than-expected realisations were partly responsible for SAIL’s ebitda fall of 21% yoy.


With business dull, larger companies, especially in the public sector, are delaying payments to their suppliers; this coupled with the fact that banks are turning risk-averse is threatening the very existence of smaller enterprises. Most companies, especially in the infrastructure space, are highly leveraged—long-term borrowings at Lanco were around R26,000 crore, while the ebitda for FY13 was just R2,580 crore. Moreover, the ability of companies to pay back loans is weakening; for the sample of 1,909 companies, interest cover has dropped to 4.6 times in Q4FY13 from 5.6 times in Q2FY13. Given the lack of clarity in policy and the relatively high cost of money, it’s hard to see investments picking up soon; more important than financial resources, though, is the inadequate supply of raw materials like coal and gas, which is hurting production of power and iron ore that has left steel plants idle. Even the consumption piece, which was holding up till recently, is slowing down—domestic revenues at Hindustan Unilever grew at 13% yoy in Q4FY13 compared with 16.5% yoy in the nine months to December 2012. Discretionary spends are clearly tapering off—at Bajaj Auto, for instance, sales of motorcycles in the home market fell 10% yoy while volumes at Asian Paints grew by an estimated 3-4%. Even drug firms are feeling the pinch; sales at Cipla, for instance, were up just 5% yoy. The bottom line is that India Inc’s profits are wilting, having fallen a sharp 16% yoy in Q4FY13. Hopefully, the monsoon will bring some green shoots.


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