News: India Inc growth bandwagon rumbles on

(FE 09/04/2006) Mumbai - The defining moment for both stock markets and India Inc has finally arrived. With the fourth quarter number crunching about to kick off, investors, analysts and even corporate honchos are keeping their fingers crossed. Will Corporate India be able to justify the spectacular bull run on Dalal Street that took the Sensex almost near the 12,000 level?

If initial signals are any indication, the growth mantra of the corporate sector is expected to continue in the quarter ended March 2006. Though the previous quarter (Q3) witnessed a slump in profit growth — 7 per cent as against 21 per cent in Q2 — due to the dismal show by the oil & gas sector, the Q4 growth is expected to continue at a steady pace.

Most of the key sectors — from infotech, textiles, pharma, cement and steel — are expected to churn out better profits for Q4. However, oil & gas and automobile sectors are likely to show some turbulence. In fact, oil companies have already warned of huge losses due to the cap on fuel prices. Here’s a look at some key sectors:

FMCG BACK IN BUSINESS

It’s thumbs up for the FMCG sector in the Q4 of last fiscal. After a prolonged slump in the first two quarters of FY 2005-06, FMCG companies are riding on higher in volumes and earnings. The trigger, say analysts, is stupendous economic growth, increase in consumer income and higher rural spending.

Says an analyst from Motilal Oswal: ‘‘Despite the price hike initiated by the FMCG firms in the early last year and increase in major categories in the first quarter of present fiscal, the volumes have not been impacted. In fact, volume growth is excellent in last two quarters and the Q4 results will be very good’’.

‘‘Volume growth will be pretty good. For instance, HLL had a bad Q1 in FY 06. But this year, it will be pretty good. If FMCG firms perform well continuously, then the economy will benefit immensely,’’ says another FMCG analyst.

CEMENTING TIES

Though the 160-million tonne Indian cement industry did not have a good December quarter due to unseasonal rains in South India, thanks to the pent-up demand, the volumes have shot up by 8-10 per cent in the fourth quarter of fiscal 2005. Cement prices are ruling at record high and expected to remain high in the near future. This means another good quarter for cement companies.

‘‘The top four cement companies have recorded a 13 per cent growth in their despatches,’’ says Sitesh Sinha, a cement analyst. “This trend will continue for the next couple of months and we do not expect even the monsoon to dampen the sales momentum,” he adds. Thanks to an unprecedented boom in the construction and infrastructure sector, the demand for cement has shot up by an average 15 per cent to 20 per cent in the last fiscal.

STEEL TO STEAL THE SHOW

It has been ‘‘so far, so good’’ story for the steel sector this year. Steel companies are preparing to come out with better results in Q4. ‘‘Steel companies had a wonderful fiscal 2006. This is likely to spill over to next six months as infrastructure activites in India have just started perking up. However, companies have to tackle rising raw material prices,’’ says Darmesh Bhatia of Angel Commodities.

Steel prices have already started rising globally in line with the increase in raw material costs. It will be interesting to see how companies keep the prices steady and protect their bottomline amidst rising raw material cost, international competition and aggresive expansion plans.

Anticipating better results, steel shares have already gone up along with other sectors. Leaders like SAIL, Tata Steel, Jindal, Ispat and Essar are unlikely to disappoint their investors.