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Pressure now on maintaining margins, managing risks

2008-05-02 16:31:30 Source : CNBC-TV

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By Haresh Soneji, Research Analyst, CNBC-TV18

Forget topline and bottomline, the pressure is now on maintaining margins, managing risks and cutting costs.

Though the street had been gearing up for some stormy weather on earnings street, the fears of a marked slowdown have fortunately not played out. But it hasn't been all sunshine either. A quick study of the results out so far suggests there is a pressure on the sustainability of margins.

CNBC-TV18 analysed 12 major sectors and while the findings reveal an equal number of outstanding and poor performers, the headline numbers are not sufficient to call it a trend. The conclusion could at best be mixed, with a bias towards bad performance. The quarter saw strong performances from technology, construction, broking, FMCG, telecom and sugar.

However, there are some shades of grey in construction and broking. A quarter-on-quarter comparison of the businesses suggests a slight slackening. Both have been beaten down badly due to bad market conditions and rising interest rates, but brokerages have managed to score well when it comes to diversification of risk. This is evident in the case of sugar companies too - albeit with a little help from good crop prices.

But it's FMCG where the profit growth has been most surprising - a whopping 55% over the year. Courtesy Nirma, which staged a turnaround (profit of Rs 21 cr versus a loss of Rs 93 cr) and brought a much needed sparkle to the sector.

** Table 1**

SECTORS: GOOD NUMBERS

Growth (%) Net Sales Adj Profit PBDIT

IT(QoQ) 10 6 7

Const 59 38 32

Broking 69 40 92

FMCG 16 55 10

Telecom 29 22 24

Sugar 14 Vs loss 198

SECTOR ANALYSIS

Good Performers

-Construction: Biz slowing, QoQ slowdown seen

-Broking: Other businesses contributing

-FMCG: Nirma turnaround contributes

-Sugar: Other businesses contributing

The not-so-hot numbers include metals, auto, auto ancillaries, textiles, pharma and cement. Cement has crumbled on the back of high power costs, even as auto ancillaries continue to fight price pressures and lower margins. Pharma too suffered a bout of ill-health as interest outgo ate in profit growth, despite good operating margins

But the jury is still out in the case of auto and metals. Those numbers could change significantly once the big boys start reporting. So, there is a good chance that the current picture could be a skewed one.

In conclusion, it's been a tepid quarter till now with pressures on sustaining operating margins. But since it ain't over till the fat lady sings, we will wait for some large caps to report numbers over the next few weeks.

**Table 2**

SECTORS: BAD NUMBERS