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Indian firms Q3 earnings growth boosted by IT

BOMBAY: Indian software firms maintained their robust growth but cyclicals failed to meet expectations they would benefit from the country's economic recovery, latest company results show.

A Reuters compilation of third quarter (Oct-Dec) results of 132 companies showed net profit of these firms grew by an average 34 percent over the year-ago period, while sales grew 30 percent.

Excluding software firms and heavyweights like Reliance Industries, State Bank of India and Oil and Natural Gas Company with large profits and growth numbers, the net profit rose just 17 percent.

"The cyclicals have been a disappointment, but information technology firms, especially the larger ones, did well. So the polarity of profit growth is still seen," said Nirjhar Gupta, chief of research at local brokerage Prabhudas Lilladher.

While software firms have been consistently performing well with business and profitability improving quarter over quarter, signs of an economic recovery early in the financial year had fuelled hopes of a better performance by the cyclical firms.

"But cyclicals like cement, steel, aluminium and oil and gas have fallen slightly below expectations," said K. Ramachandran, head of research at Birla Sun Life Securities.

"The economic recovery is yet to show up in the bottomlines and that is worrisome."

India recently raised its Gross Domestic Product growth estimate for 1998/99 to 6.8 percent from an earlier forecast of six percent. Its revenue collections have picked up sharply in the last quarter of 1999 to 1,150.75 billion rupees or 62.9 percent of the 99/00 estimate, helping contain fiscal deficit.

Others said the recovery was only consumer-driven and therefore not very real.

"There is basically a lot of consumer-led demand in cars, consumer durables, motorcycles, but we are yet to see investment-led growth," said Gupta.

Most corporates that did well had benefited from operational efficiencies, analysts said.

CYCLICALS PERFORMANCE OUT OF LINE WITH SHARE PRICES

Birla's Ramachandran said the earnings performance did not vindicate the sharp share price rally in several of the cyclical stocks over the past nine months.

"Things are going to be fairly moderate in the next few quarters. If profitability has to improve, it will have to be helped by cost-cutting and operational efficiencies. But it will be a gradual process."

Cyclical shares had jumped manifold since the start of the fiscal year as the economic recovery theory gained ground.

Truck maker Ashok Leyland ASOK.BO shares rose 236 percent from April 1999 to a high of 143 rupees in January, Larsen & Toubro 185 percent to a high of 624 rupees, Hindalco Industries 133 percent to a high of 1,090 and Associated Cement Companies ACC.BO 131 percent to a high of 284.25.

RESULTS HIGHLIGHTS

The Reuters compilation showed 28 software companies posted an average net profit growth of 83.81 percent, while sales grew 43.09 percent over the previous year quarter.

Earnings of some firms like Kale Consultants, Hughes Software and HCL Technologies were buoyed by incomes from their initial public offerings. -Reuters