Stock Ideas

Resisting the Downturn

We take a look at companies that are fighting the slowdown by improving their operational efficiency

The prevailing slowdown in the economy has been well documented by various sections of the media. The government is trying to do its job through stimulus packages and believes that the economy will still grow at a rate of 7 plus per cent. However, the ground realities seem to be a tad tighter.

Of the BSE 500 companies, as many as 143 of them have reported a drop in their sales on an y-o-y basis. 74 of them have reported losses, as compared to 27 a year earlier. The realities for corporate India are much more serious than what is visible through the macro view. And in these trying times, companies that are able to adapt their business practices in response to the market conditions are the ones that will live to fight another day.

For this, we looked at companies that have reported relatively flat sales figures or have seen their sales go down, but have still managed to increase profits on the back of operational efficiency. We arrived at a list of 11 such companies that have not buckled under the pressure. These are the companies that are not sitting idle, and have cut down on the flab to be fighting fit.

ICICI Bank, has seen a growth in profits of 3.4 per cent in this quarter, which was solely due to impressive operating profit growth. But this growth in operating profit came off mainly due to its treasury income, which went up by more than threefold compared to the December 2007 figures. While this does not mean the bank is out of the wood as yet, but its plan to go slow is bearing fruit.

The reason behind Siemens' positive growth in profits is both the increased operational efficiency and the dividends income from its equity portfolio. However, this positive news has not been able to negate the investors' opposition towards the company, which now plans to sell its IT subsidiary Siemens Information Systems Ltd to its parent company.

Container Corporation Of India
This GOI undertaking is feeling the heat of the economic slowdown in the country. While its sales in Q3FY09 went down by just 0.13 per cent on y-o-y basis but its sales was down by over 6 per cent on a q-on-q basis. The PSU is doing its utmost to fight the slowdown by enhancing its operational capabilities, so much so that its profit growth is still in green.

Bharat Electronics
The performance of this PSU over the last decade has been nothing short of breath taking. And why not? After all, it operates in a segment that has virtually no private players and no dearth of demand from the defence establishment. With buyers in all kinds of defence and security agencies, there is no sign of slowdown in orders for this company.

Cadila Healthcare
Before this quarter's results came out, it was expected that the losses due to conversion of the foreign currency loans of Cadila Healthcare would force it to report negative profit growth. But the company has proved the street expectations wrong and has been able to post a 14.41 per cent growth in profits, on the back of better operational figures.

Voltamp Transformers
As the name suggests, this company is into the manufacturing of transformers. Among others the primary clients of the company include the likes of Siemens, ABB etc. PAT of this zero-debt company has improved considerably this quarter compared to December 2007. But the slowdown in the core sectors is hurting its volumes.

Graphite India
As the primary customer of the company, steel industry is itself feeling the pressure of economic slow-down it obvious that this company would be no exception. However, the company has has done well to improve upon operating margins this quarter. With plans to further decrease the work force the company is fighting to get in shape.

The revenue of this subsidiary of TCS Limited dipped heavily this quarter compared to the December quarter of 2007. The slump in the customer services segment has dragged the overall sales figure down even though the revenues from the rest three have swelled. With better operating margins the company trying to make up for the slow-down in one segment.

- Of the BSE 500 listed companies we looked for companies that are facing pressure on topline growth i.e. their Net sales have either shrunk or remained stagnant this quarter compared to December 2007 quarter

- Then we filtered out those companies that still have been able to growth their profits due to operational efficiency i.e. their opeartion profits have grown compared to Q3 2007.

Resisting Downturn
      Y-o-Y Growth (%)            
Company Name  Industry  PAT (Rs Cr) Q3  Sales  PAT  Operating  Price (Rs)  PE  PB  52W High/Low (Rs)
ICICI Bank Banking 1272.15 -0.96 3.41 1.4 335.5 8.97 0.75 1152/282
Siemens Switching Equipment 330.58 -14.57 67.76 9.98 221.3 10.27 3.09 865/186
Container Corpn. Of India Transport Support Serv 206.3 -0.13 6.94 6.15 646.1 10.06 2.25 967/540
Bharat Electronics Electronic Equipments 122.77 -1.53 8.67 10.44 838.75 9.16 1.95 1501/545
Cadila Healthcare Drugs & Pharma 72.24 -0.99 14.41 18.71 252.7 21.72 4.31 347/209
Voltamp Transformers Transformers 34.1 -4.52 50.02 26.23 323.1 3.08 1.31 1450/302
Graphite India Welding Machinery 29.31 -3.36 2.52 0.68 24.25 2.38 0.45 80.75/24
CMC Computer Hardware 23.36 -33.54 10.29 2.5 290.35 4.61 1.17 939/250
Price related data are as of February 24, 2009

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