It is ‘recession’ for one in seven of NSE-listed cos

The economy as a whole may still be growing, although at a reduced pace; but for many listed corporate entities, ‘recession’ is here and now.

An analysis of the quarterly financial performance shows that one in seven companies listed on the National Stock Exchange saw a decline in the quantum of ‘value added’ in their operations for two successive quarters (ended September 30, 2008) – the commonly accepted definition of recession.

As many as 116 companies out of a sample of 814 companies analysed have seen a decline in the ‘value added’ (measured as the sum of ‘net sales’, ‘other incomes’ and net addition to inventory minus the value of raw material and stores consumption) during June and September 2008 quarters compared to their immediate previous quarters.

Maruti Suzuki instance
Take for instance, Maruti Suzuki. The company added Rs 1,428.49 crore in the quarter ended March 2008.

However, this came down to Rs 1,392.29 crore and further to Rs 1,279.63 crore respectively, in the two subsequent quarters.

The decline in value addition during these two quarters relative to that generated in March 2008 for these 116 companies has ranged between half a percentage point and close to 100 per cent (the entire surplus being wiped out).

However on an average (median value), the decline stood at close to 30 per cent (see Table).

That, more than normal cyclicality is at work here is evident from another piece of statistic: There were only 79 companies which posted two successive quarters of de-growth as of June 2008, a good 40 per cent lower than the latest number.

Companies usually see a sharp deceleration in output in the first quarter of a fiscal year before the momentum of economic activity sees output catching up in the second quarter number. Even in September 07, there were only 82 companies that witnessed a decline in ‘value added’ for two successive quarters.

Viewed from either perspective, the latest number represents a significant shift in the underlying business fundamentals.

Competitive pressures at work
Anecdotal evidence points to a combination of competitive pressures forcing companies to keep their output prices in check even as the input cost increases pare surplus value added by them.

Bharat Petroleum is a case in point.

The former has seen crude petroleum prices skyrocket and regulatory pressures preventing it from marking up the refined, end-product prices.

Grasim too found itself in a similar predicament with regard to viscose staple fibre and cement businesses in its portfolio that saw sequential declines in value added in two successive quarters.

Financial services, construction, hospitality, mineral ore extraction are some of the industries that are prominently featured in the list of companies with negative growth in value addition.

Source: TheHinduBusinessLine