ONGC’s Foreign Acquisitions may not Find Street Support

 ONGC’s overseas arm ONGC Videsh, or OVL, has been on a shopping spree abroad. On Monday, it announced a $5-billion acquisition in Kazakhstan, following up on a $1-billion acquisition in Azerbaijan in September. These deals may be in line with its long-term strategy, but may not necessarily support the ONGC’ stock which has been languishing.
According to Sandeep Randery, head of research of BRICS Securities, OVL’s proposed $5-billion acquisition is front-loaded. The company, he says, has paid upfront for the asset that will start generating substantial cash flows only from 2016 onwards. However, the interest meter will start ticking immediately.
For the $5-billion deal, OVL will be paying ConocoPhillips, it will get an 8.4% stake in the highly prospective Kashagan field that holds an estimated 30 billion barrels of petroleum reserves, of which close to 12-13 billion are potentially recoverable. The field will commence production mid-2013 at 75,000 barrels per day, or bpd, which can be ramped up to 300,000 bpd by 2016 in the first phase. In the second phase of development, production is projected to top 1.5 mbpd by 2021, which has not been approved yet.
The projections may look grand, but the deal, if approved, will empty the company’s coffers, which held net cash of $2.3 billion at the start of this fiscal. “ONGC has used available cash and has committed long-term capital to a still uncertain large development (phase 2) and which will add little to its overall production in near term,” said a Credit Suisse report.
ONGC has long been facing a steady decline in its production, even though it continues to add substantially to its reserves with incremental discoveries.
Even without this acquisition, the funding of its annual capex programme has been a growing concern as operating cash flows fall short due to high subsidies. In FY12, the company posted . 30,600 crore of cash profits after paying . 44,466 crore as subsidies to downstream companies. However, its capital expenditure budget for FY13 is . 33,000 crore, with an equivalent figure for FY14.
ONGC’s domestic oil production business, which by far remains the biggest in its current portfolio, is not adequate to fund these acquisitions or the ongoing capex due to the growing subsidy burden.
Thus, ONGC’s recent buying spree may be good to secure energy sources for the country and meet its long-term production goals, but are hardly relevant to its near-term issues. That is why the buyout may not boost the company’s stock.

RELIANCE INDUSTRIES: Sell Call on RIL at Historic High, But Some Hold a Contra View

Analysts appear to have become the most bearish in three years on Reliance Industries, India’s largest company by market capitalization, according to data compiled from Bloomberg. Most analysts have turned neutral, while ‘sell’ recommendations on the stock are at a historic high. There are brokerages with a bullish view on the company on the back of the recent positive news flow, but retail investors should be cautious in taking a bet on the stock.
Data since 2006 on analysts’ recommendations on RIL shows only 15, or close to 30%, of a total of 49 analysts tracking the company have a ‘buy’ call on it in November. One in four analysts have given a ‘sell’ call, which is unprecedented. Last November, nearly 80% of the analysts had a ‘buy’ recommendation. A similar situation was last seen only between September and December of 2009 when less than 30% of the analysts were bullish on the company with the rest being either neutral or bearish. The RIL stock remained flat over the next 12 months.
But there are some who are betting on an improved external environment, especially at the government level, besides the company’s share buyback programme to make a positive impact. “Reliance agreeing to CAG’s terms of audit of the D6 block should pave the way for some important approvals even as an expert committee submits its recommendations on gas prices by end 2012,” says a CLSA report dated November 22, while pegging the one-year target price at . 850. “While the recent step-up in buyback should support the stock, positive upstream news flow and the launch of Reliance’s broadband businesses are the nearterm news flow triggers,” it says.
The global equity research wing of UBS is also bullish on the company, saying a positive regulatory momentum is building up for it. In its report dated November 22, it listed five key catalysts that will help RIL’s share price move up: 1) formal approvals for MA, D1-D3 revised FDPs (field development plans) with start of workovers; 2) exploration approval at KGD6; 3) GRMs (gross refining margins) staying firm despite volatility and growing shale gas contribution to drive cash flows; 4) efficient cash usage for E&P, LNG; 5) gas price hike post 2014/CBM pricing.” UBS has reiterated its ‘buy’ rating while keeping the one-year price target at . 1,015.
RIL has been hit by falling natural gas output from its KG-D6 block, while the performance of its refining and petrochemical businesses was hit by commodity cycles. The company’s plans to use its huge cash pile for further growth are longterm in nature. This means there is no near-term trigger to improve earnings or prop up the stock price. 

Ethanol Blending may be Easier said than Done

Issues like availability, quality & prices may affect not just oil cos, but chemical firms as well

The chemical industry is miffed about the government’s decision to make 5% ethanol blending mandatory for petrol sold across the country, fearing that it could raise prices of the industry’s basic building block too high. However, people from both petroleum and chemical industries are awaiting further clarity on implementation of the policy to assess its exact impact. Ethanol or ethyl alcohol is a basic raw material for the chemical industry. Ethanol derivatives find use in various industries from agrochemicals, dyes, pigments, paints and additives to pharmaceuticals.
The ethanol-blended-petrol programme, introduced in 2006, has covered 13 states so far and has met with moderate success. In FY12, oil companies used 44 crore litres of ethanol for blending. “The Indian chemical industry was already suffering from rising alcohol prices due to the weak monsoon in Maharashtra and the rupee’s depreciation. The government’s decision (on ethanol blending) would further raise alcohol prices. India’s ethanol production in FY12 was around 230 crore litres, which is expected to come down to 200-220 crore litres in FY13. Of this, around 110-130 crore liters are used by the potable alcohol industry, while the chemical industry will need around 85 crore litres. This means the country will have to resort to imports to meet petrol blending requirements,” said Yogesh Kothari, president of Indian Chemical Council.
“With a compulsory blending programme, ethanol availability to the industrial sector and the potable alcohol industry is likely to get affected unless the supply is increased. Higher demand for ethanol will also result in increased price of molasses,” says Debasish Mishra, senior director, Deloitte in India 
The potable alcohol industry, which enjoys the protection of heavy customs duty on imported spirits, finds it easier to pass on the hike in input costs to the consumer, but it will not be so easy for the chemical industry that competes on a global level.
Not every person in the chemical industry is worried, though. “We are already buying industrial alcohol at . 32 per litre with 95% purity, as against the 99% purity needed for petrol blending. If the prices rise to . 35-36 levels imports will start. This 10-15% cost hike should be manageable for us, since our products are primarily used in life saving drugs,” said Ram Reddy, whole-time director with Balaji Amines, for which ethanol is a key raw material. The government is marketing the ethanol-blended-petrol programme on the grounds that it will help bring down costs and make the fuel greener.
However, the petroleum industry itself is not so enthused with the idea, citing operational challenges. “In spite of the industry’s keenness to implement it (ethanol blending), the progress was limited because of certain ground realities like, for example, unavailability of ethanol in various parts of the country. There has hardly been any change in this,” an official said on condition of anonymity. Even chemical industry sources acknowledge that the petroleum industry has been facing challenges, particularly on 
    consistent quality and taxation. Industry leader Indian Oil had mentioned in its annual report for 2009-10 that lack of availability of ethanol was the main reason for the ethanol-blended-petrol programme not stabilising. “Further, oil marketing companies have been facing certain constraints with respect to free inter-state movement of ethanol and the levy of duties by state governments,” it added. Although the government’s intent is right, how the policy gets implemented would determine its impact on both petroleum and chemical industries. A hasty implementation, without addressing the concerns of both the industries, could end up just disturbing the domestic equilibrium. 

Rising Oil Prices to Leave Govt Fiscally Challenged

India is once again staring at a dangerous concoction of a weak rupee and high international oil prices that could delay any meaningful fiscal consolidation process. The central government’s tax income from the sector has declined, but the subsidy burden continues to remain high.
India’s petroleum sector alone reported an under-recovery of . 85,586 crore — around 60% to be financed by the central government — for the first six months of the current fiscal, as global oil prices stayed firm and rupee remained weak. Hopes for a turnaround had flared when the government took steps in September to rein in the sector’s losses, accompanied with the rupee’s appreciation above 52 against the US dollar and stagnation in global crude oil prices. However, things have once again worsened over the past two months.
From the peak above 52 against the US dollar at end-September, the rupee has steadily fallen to below 55 at present. Meanwhile, crude oil prices have spiked following the unrest between Israel and Palestine.
As a result, India’s cost of importing a barrel of oil has moved above . 6,000 after a gap of two months.
Under-recoveries reported by the three staterun oil marketing companies (OMCs) have gone down from . 551 crore per day in the first fortnight of September 2012 to . 412 crore per day in the second fortnight of November. However, the average for the current quarter so far still remains at par with the July-September quarter. This means the sector’s under-recovery should remain around . 37,000 crore in the October–December quarter in line with . 37,775 crore of the second quarter.
It is no secret that the government is finding it difficult to compensate OMCs. For the first half of FY13, the government agreed to pay just 35% of the . 85,586 crore under-recovery. This was much lower than the typical 60% it had paid in the earlier years. Factors such as delayed divestment process due to weak capital markets and poor receipts from the recent 2G auction are compounding the problems.
At a time when the industry’s under-recoveries are growing, reduction of taxes has brought down the central government’s income from the sector. In June 2011, the government had cut customs duty on crude oil and products and excise duty on diesel, which was restored only in September 2012. 

KEY POINTS India’s petroleum sector alone reported an under-recovery of . 85,586 crore
From the peak above 52 against the US dollar at end-Sept the rupee has fallen to below 55 at present
For the first half of FY13, the government agreed to pay just 35% of the . 85,586 crore under-recovery
India’s growing petroleum consumption but stagnating production means the imports are rising

Stronger Rupee Bumps Up Margins, Profits

Net profit grows after four quarters of decline, but revenue growth and higher interest costs a worry

    In a reversal of trend, operating margins and earnings of India’s top companies, led by the steel, tyre, metal and fast moving consumer goods sectors, improved in the quarter to September, buoyed by a stronger rupee last quarter, which helped stem foreign exchange losses and boost profits. However, what is worrying is slowdown in revenue growth, higher interest costs and increased leveraging. An ETIG analysis of 2,300 companies, excluding banks, financial firms and oil marketing companies, based on data for 13 quarters, shows a turnaround in corporate profitability and operating profit margins. India Inc’s operating profit margins improved to 14.5%, which was thehighest in the past five quarters. Net profit for the quarter rose 25% year-on-year — the highest in the past two years and a welcome break after four consecutive quarters of slide. However, it may be too early to cheer considering that the earnings were boosted because of a strong rupee during the past quarter. The Indian rupee rallied strongly to 52 against the US dollar at the end of the September 2012 quarter — up from 56 at the start of the quarter — helping local companies to cut their forex losses. This took a chunk off other expenditure, boosting operating profits. Since then, the rupee has started sliding and was 55 to the US dollar last weekend.
The latest earnings figures confirm a few worrying trends from the recent past. The growth in net sales, at 10.4%, was the slowest in the past three years, while other income – income from non-core business activities – still constitutes over onefourth of pre-tax profits. And to boot, India Inc’s leveraging has risen during this period. An analysis of half-yearly statement of assets and liabilities published by 1,608 companies, excluding banks and finance, shows that India Inc’s net debt to equity rose to 0.44 at end September 2012 from 0.4 at end March 2012. This was because of a 14.2% rise in net debt, compared to a rise of 4.4% in net worth during the same period. This is also reflected in high interest costs, which ate into 3.4% of net sales revenues – slightly higher than the average for the preceding four quarters. What is also worrying for Indian companies is the macro economic backdrop. Inflation continues to be high — 7.45% in October — dampening the prospects of a possible rate cut, while factory output slipped to 0.4% in September, indicating a contraction in economic activity. The finance minister has scaled down the GDP growth forecast for FY13 to 5.5%, which will be slowest since FY03.
The quarter’s revival in earning numbers was led by sectors such as tyres, steel, metals, mining and minerals, cement and cement products, FMCG, Infotech and power generation. Similarly, the aggregate numbers of smaller industries, such as hospitality, laminates and plywood, agrochemicals, petrochemicals and tyres, were also better than the past few quarters. Sectors such as paper, sugar, solvent extraction and ferro-alloys reported a return to profitability, compared to a loss in the September 2011 quarter. However, the troubles for sectors such as capital goods, real estate and construction, automobiles and telecom continue, given their under-performance, impacting profitability.
What has been heartening is the fact that outbound corporate M&A deals have picked up pace after the lull of 2011 and first half of 2012. Outflows from India, the dominant source of FDI from the Asian region, increased from $13.2 billion in 2010 to $14.8 billion in 2011. However, Indian Transnational Corporations became less active in acquiring overseas assets. The amount of total cross-border M&A purchases decreased significantly in all three sectors — from $5.2 billion to $111 million in the primary sector, from $2.5 billion to $1.5 billion in manufacturing, and from $19 billion to $4.5 billion in services.

Subsidy Issues Mean Retail Investors have Little to Gain

IndianOil, BPCL, HPCL were compensated for . 60k cr against under recovery of about . 86k cr

    Three oil marketing companies — IndianOil, BPCL and HPCL — reported profits on Friday for the July-September 2012 quarter, which were way short of covering the preceding quarter’s losses. That the government is facing challenges in compensating these navratna companies is becoming clear from delayed and limited payments, which is raising the debt burden and eroding the net worth for these three companies.
The three oil marketing companies together had reported a total under-recovery of . 85,586 crore for the April-September 2012 period. However, they were compensated only for . 60,160 crore. This meant nearly 30% of the under-recovery had to be absorbed by the marketing companies. IndianOil had to absorb . 13,635 crore of under-recoveries, while BPCL absorbed . 6,133 crore.
In other words, the profits from the second quarter were insufficient in compensating for the losses of the April-June quarter. IndianOil, the biggest of them, reported a net profit for the September 2012 quarter — thanks to the . 16,094 crore of government grant towards the April-September period. It had posted a net loss of . 22,450 crore in the first quarter.
The government’s support for the first half year barely at 35% of the industry’s total under-recovery was at par with the burden borne by upstream companies like ONGC, Oil India and Gail.
This reflects a sorry state of affairs where the government’s ability to compensate oil companies for their losses has gone down substantially. IndianOil’s net worth — total shareholders’ funds —has reduced 22% in thepast six months to . 45,041 crore as a result of these losses.
Ongoing cash losses have also forced the company to borrow heavily which has pushed its borrowings up 26% within the last six months to . 88,960 crore at the end of September 2012. The growth in total debt is somewhat lower at BPCL and HPCL as they cut their long-term borrowings during thepast six months.
Although the OMCs will never face the risk of bankruptcy or a shutdown, being governmentowned and strategically important, retail investors cannot expect to make any positive returns from them till the subsidy regime improves.

New Power Plant and Cheaper Funds Likely to Boost Essar Oil

Essar Oil’s September 2012 quarter numbers failed to satisfy the market. The company showed an improvement on some operational parameters, but the bottom line was barely in black. However, things could start improving in the next couple of quarters once its coalbased power plant is commissioned and the company arranges for lowcost foreign borrowings.
Essar Oil posted a net profit of . 105 crore on a turnover of . 21,023 crore. The company operated its refinery at full capacity through the September quarter and increased its heavy oil intake to nearly 64% of the total. This enabled it to post a gross-refining margin of $7.86 per barrel — its best so far. Its operating profit stood at . 1,037 crore against a loss in the year-ago period. 
However, the entire operating profit was wiped out by interest and depreciation costs that together stood at . 1,064 crore. It was mainly . 132 crore of other income that helped it post profit in absence of any taxes. On the other hand, the company’s balance sheet saw a sharp worsening. Its net worth dropped to . 658 crore — lower than a third of what it was just six months ago. A simultaneous increase in borrowings by 26% to . 20,208 crore meant that the debt-equity ratio looked horrible at 30.7 at end-September 2012. Notwithstanding these factors, the management is unfazed.
“Essar Oil’s refinery with 20-mtper-annum capacity and the 11.8 complexity index was built at a capex of . 25,000 crore. A similar refinery today would cost twice that,” said LK Gupta, MD & CEO, Essar Oil. He assured that Essar Oil’s bankers are not in any way anxious about the balance sheet since operating cash flows would be sufficient to meet the debt repayment schedule.
The company will shortly commission its coal-fired power plant, which will reduce the fuel cost for running the refinery, and is planning to raise cheaper external commercial borrowings to part-finance its rupee-denominated high-cost borrowings. Both these steps should push profitability up to a level, where it won’t be dependent on other income. 

KEY POINTS Company showed an improvement on some operational parameters, but the bottom line was barely in black
Things could start improving in the next couple of quarters once its coal-based power plant is commissioned
The company’s balance sheet saw a sharp worsening

ONGC: Rising Subsidy is like a Millstone Around the Neck

ONGC, India’s biggest profitmaking listed company, has reported a 32% slippage in profits for the quarter to September as revenues dropped, costs rose and margins shrank, mainly due to a spurt in its subsidy burden. Moreover, there is no assurance that the state-run company’s subsidy woes will end anytime soon, making the stock unattractive to investors. 
Under the government’s directive, ONGC had to extend . 12,330 crore of discounts to the three public sector oil marketing companies, more than twice the burden in the year-ago period. This led to a 12.4% drop in the company’s net revenues to . 19,885 crore. As a result of the heavy discounts extended, the company’s net realisation from selling each barrel of crude oil dropped 43.4% from the year-ago level to $46.8 a barrel. Its oil production also continued to fall, resulting in an output of 5.1 million tonne during the quarter, down 8.2% compared with July-September 2011. At the same time, the company’s costs increased due to a 20% jump in statutory levies, by far the biggest cost component for the company. A 42% jump in exploration costs and a 66% jump in staff costs made the matters worse. 
The company’s chairman and managing director, Sudhir Vasudeva, mentioned in a post-results press conference that the company’s entire cash reserves could get wiped out “within no time” if the heavy discounts were to continue. The company is working on several high capex projects. ONGC’s performance has been stagnating not only due to its ever fluctuating subsidy burden but also because of a steady decline in output from its ageing oil wells. It has failed to make up for this by the timely commissioning of new fields. 
The company announced a few discoveries during the quarter, as has been its custom for the past several years. However, it is not clear as to when these discoveries would translate into incremental production. 
The company had announced in the recent past that some of its new fields would commence production in the 2013-2015 period, which could address to an extent the concerns over its dwindling output. Nonetheless, the company’s valuation is unlikely to improve in the near term until the ad hoc nature of subsidy sharing is done away with. 

‘Central Banks May Buy 5,000 Tonne of Gold Over 10 Years’

In recent times, high gold prices have put off households and investors. But Aram Shishmanian, CEO of World Gold Council, 
strongly feels that economic uncertainties and wealth destruction that the world witnessed in the last few years can only make gold more relevant. The return of Obama and hopes of another round of quantitative easing has once again pushed up the yellow metal. As the Council tries to convince central banks of the importance of building gold reserves, he toldRamkrishna Kashelkar that investment demand would surge in the days to come. 

How do you see the global gold market today? Globally, gold is undergoing fundamental shifts in the nature of its demand. We are seeing a new relevance to gold emerging. For the past 10 years, central banks over the world were selling gold. They sold some 5,000 tonne over the last decade. Since the last two years, they have started buying gold again because they are reassessing their risk management approach. As you know, the whole crisis in the US and in the Europe was driven by bad risk management. In the next decade, they could be buying back over 5,000 tonne gold or an average 500 tonne per annum. Countries would increasingly prefer holding gold as part of their multicurrency forex reserves. 

So you believe investment demand for gold will grow rapidly? Yes, the investment market will grow dramatically even at the retail level. A few years back, it was just 5% of the market, now it is 40%. Why? People in the US and Europe have lost 20-40% of wealth in the last few years. Hence, people have started looking to hold part of their funds in gold to protect wealth and make sure they don’t stay under-funded for their future. Gold may not be ‘the answer’ to the wealth destruction problem, but it is an important contributor. This is relevant for India as well. If Indians had not protected their wealth all these years through investing in gold, they would be much less wealthy and perhaps even face some of the challenges the Americans are facing today. With increased sophistication of the financial system and suitable policy changes, the demand for gold-linked investment product is going up. Gold demand is shifting from coins or bars to financial products like ETF. 

But aren’t high prices impacting demand? That’s true. Last year, India’s demand for gold stood at . 2.3 trillion or around 980 tonne. This year, it has come down mainly due to factors like devaluation of the rupee against the US Dollar and a relative slowdown in the economy. Gold price had peaked to . 3,400 per gram earlier this year and that has no doubt had an impact on gold demand. Still, considering the most important last quarter is still to go, even in a worst-case scenario, the annual demand is not expected to fall more than 10% from last year’s level. When compared to other discretionary expenditure, gold has done better than anything else in India this year. 

What do you have to say on gold lending in India? Leveraging is a very sound usage of gold and it is good that it is growing in India. Using gold as collateral with no intention to sell it has a real value. In fact, we have been working with European central banks to use their national reserves to guarantee government bonds. This can considerably reduce interest rates. This idea is getting a lot of attention now.

Last year, India’s demand for gold stood at . 2.3 trillion or around 980 tonne. This year, it has come down mainly due to factors like devaluation of rupee against the US Dollar and a relative slowdown in the economy. Gold price had peaked to . 3,400 per gram earlier this year and that has no doubt had an impact on gold demand.
    ARAM SHISHMANIAN
    CEO, World Gold Council

No Dues from Govt Mean OMCs to Post Losses Again

India’s Navratna oil marketing companies — Indian Oil, BPCL and HPCL — are set to report another quarter of heavy losses as they have failed to get compensation from the government for selling fuels below cost.
As a result, the trio will see a further reduction in their net worth to a critical level when they announce their results on November 9.
The three oil marketing companies sell diesel, LPG for domestic use and kerosene through public distribution system at prices that are substantially below their costs, in accordance with the mandate of their majority shareholder, the government of India. 
In return, a small part of their losses is made good by discounts from upstream PSUs like ONGC, Gail and Oil India. The larger share of losses is made good by the government.
Petroleum planning and analysis cell (PPAC) under the petroleum ministry calculates the industry’s under-recoveries. 
During the June ’12 quarter, the three oil marketers together had posted an unprecedented net loss of . 40,536 crore as the dues from government did not arrive. A similar situation is expected to repeat for the September quarter with the OMCs not getting compensation from government so far.
    “We have not received even a single rupee from the government for entire April to September period—neither the money, nor the letter specifying the amount they will pay,” a highranking official in an OMC said.
An official from another OMC said, “With the budgetary provisions for petroleum subsidies over, the government must get parliamentary approval in the winter session to pay oil companies.” 

Q2 Nos Better, but No Signs of Recovery Ye

    India Inc’s results for the September quarter so far have been refreshingly better than in the past couple of quarters, a fact reflected in the stock market with benchmark indices gaining 9% in the past two months, but experts caution a real turnaround is yet to come, reportsRamkrishna Kashelkar from Mumbai. Interest cost, which was growing at 25-50% yearon-year for the past six quarters, rose just 7% in the September quarter.

‘Don’t See a Turnaround in Sept Quarter Bounce’

Operating profit margin of cos improves 16.3%, but experts say macro-economic trends don’t signal a positive trend

    India Inc’s results for the September 2012 quarter have so far been refreshingly better than the stagnating past couple of quarters, a fact that’s reflected in the stock market with benchmark indices gaining 9% in the past two months. And, experts believe that the real turnaround is yet to come.
An ET analysis of 861 listed companies that have published results for the September 2012 quarter, excluding banking and finance companies, reveals that the aggregate operating profit margin has improved to 16.3%, which was the best since September 2011 quarter.
The interest cost of the industry, which was growing at 25% to 50% year-on-year for the past six quarters, rose just 7% in the September 2012 quarter. What’s even more heartening is that for the first time in the past three years, interest cost declined on a sequential basis — the interest burden of all companies put together was at . 10,158 crore, 13% lower from the June 2012 quarter. This resulted in a 29.8% growth in the aggregate net profit to . 48,444 crore, which appears significantly better when juxtaposed against the anaemic growth numbers of the past four quarters.
However, experts are not entirely convinced by these numbers, at least not yet. “Macro economic numbers are not yet signaling a positive trend. We see cost cutting, project delays and postponements in fund raising by corporates on a large scale. We need to wait for another 1-2 quarters before knowing for sure if a turnaround is under way,” said Nilesh Karani, head of research with Magnum Equity Broking.
Sandeep Randery, head of research with BRICS Securities, shares the same view. “It would be premature to call it a turnaround at this juncture. An improvement in the incoming data like auto sales, bank credit growth, etc., would be needed to argue that a turnaround is under way.” If it’s not a turnaround and if the macro-economic indicators are still indicating a slowdown, then what has driven India Inc’s performance this quarter?
The answer apparently lies in appreciation of the rupee through the September quarter. Unlike preceding quarters when the rapidly depreciating rupee would result in forex losses, the currency’s appreciation this quarter has helped companies reduce their other expenses, which is reflecting in improved operating margins.
On the other hand, the data shows that key operating costs like raw material, staff cost, power etc., have not contributed to the improvement in the operating profit margin. In fact, staff cost, at 9.1% of net sales, was the highest in the past three years. Another worrying trend is that the year-on-year growth in net sales at 12.7% has dipped to a level not seen in the past two years. This analysis supports the experts’ opinion that a sustainable turnaround is yet to come. One may argue that even if the rupee goes back to 51-52 levels, India Inc would still be able to turn in another robust performance in spite of its problems. However, for the rupee to sustain at a higher level, the macro-economic indicators will have to improve first. So, investors shouldn’t read too much into India Inc’s performance for the September quarter.