In FY14, 18 Companies To Join Group Reporting $1 Billion And More In Net Income, The Most In 6 Years

The growth slowdown of the past few years doesn't seem to have taken the edge off India Inc’s appetite for profit. As many as 18 companies are poised to join the club of those reporting $1 billion in net income in FY14, the highest in the past six years, keeping the rupee-dollar rate constant at current levels. While this is just one more than last year, the number is significant in the context of India’s prolonged slump. ONGC and Reliance Industries occupy the top two berths in that order while Tata Consultancy Services replaces Coal India at the third place that it occupied last year. According to an ETIG analysis, 18 companies are expected to cross Rs6,100 crore or $1 billion in profit in FY14 against only four in FY08.

The tally is also higher than the 13 companies that made it to the $1 billion club in FY08 even after considering the rupeedollar rate of 40 prevailing at the end of that fiscal year. “Inflation, rupee depreciation and commodity price increases, while hurting the economy, have also benefited certain sectors," said P Phani Sekhar, fund manager, portfolio management services, Angel Broking. Sekhar added that consumer-facing businesses have benefited from price increases. “One of the primary characteristics of the inflationary conditions that prevailed from 2009-14 has been the propensity to consume at the altar of savings.”

The nature of companies that are members of the club has also changed significantly over the years. In FY08, of the four companies that crossed Rs6,100 crore in profit, three belonged to the public sector with RIL being the only non-state entity. In FY14, 13 out of 18 companies will likely be from the private sector. “In the last 5-6 years (since FY08), Indian domestic manufacturing industry has suffered a slowdown,” said Sachin Shah, fund manager, Emkay Investment Managers.








“On the other hand, the domestic services sector and export-oriented businesses have done reasonably well. And this is the primary reason why companies like ONGC, RIL, NTPC have taken a back seat and companies like TCS, Infosys, Wipro, Tata Motors (JLR), HDFC Bank, ICICI Bank have done reasonably well.”

Considering the rupee’s appreciating trend and the expectation of a recovery in the domestic economy after the general elections, some analysts believe the number of billion dollar profit companies will be maintained in FY15. “I don't see any reason why the number of Indian companies reporting $1 billion or more of profits per annum should fall given that the Indian economy, even in a recession, continues to grow at 13% per annum (on a nominal basis),” said Saurabh Mukherjea, CEO, institutional equities, Ambit Capital. “If anything, given that the informal segment of the economy is being relentlessly squeezed by better organized, listed companies, we should see a sharp pick-up in billion dollar or more profit reporters in the years ahead.”

A sustained growth revival could see more companies joining the club in subsequent years. “We are expecting 16% earnings growth in Sensex earnings for FY15, (so) $1 billion PAT (profit after tax) companies would largely remain the same," said Rikesh Parikh, vice-president, institutional corporate broking, Motilal Oswal Securities. “However, afew more companies could make their mark in FY16 in case of economic revival.” The top three IT companies, including TCS, Infosys, and Wipro, will figure in the list for FY14 as well following sustained momentum in global IT outsourcing demand and the weaker rupee.

“Export-oriented sectors such as IT have benefited from 33% depreciation in the rupee against the dollar," said Sekhar of Angel Broking. Bharat Heavy Electricals (BHEL) is likely to miss the list this time around, considering the public sector electrical engineering giant’s poor show in the first nine months of FY14, when net profit halved to Rs 1,616 crore from Rs 3,377 crore a year earlier. It’s unlikely that the company will be able to exceed last year's profit of Rs 6,614 crore. Axis Bank is expected to debut in the club in FY14, given its double-digit net profit growth in each of the three quarters of the fiscal year so far. It has clocked a profit ofRs4,375 crore in the nine months and is likely to cross the Rs6,100 crore mark by the end of the March quarter.