Ensure funds for core infrastructure companies: Assocham to Govt

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New Delhi, Nov 16 (UNI) The Assocham today urged the government to ensure smooth fund supply to the core infrastructure companies so that their capacity generation process remains intact to hit an upward track.

According to an Assocham Eco Pulse (AEP) Study, the net profit of the core infrastructure companies on average basis, declined by 75.58 per cent while their interest cost shot up by 84.18 per cent.

At a time when a push to core infrastructure industries is quintessential to ensure and sustain sound economic growth, core infrastructure companies are under tremendous pressure as evident by the steep decline in profitability by 6.34 per cent as their interest cost soared by 11.54 per cent on weighted average basis.

The production growth in core sector was down by 3.6 percentage points from 7.5 per cent in Q2, FY 2007-08, as measured by the IIP, to mere 3.9 per cent in the second quarter of current fiscal.

A quarterly analysis of core infrastructure industries indicated that sectors like steel, cement and petroleum refining are down with negative growth in net profits while crude oil exploration and production recorded a near zero growth rate. Only power sector managed to show some resilience though flared moderately with single digit growth rate in net profit.

The companies analysed in the study comprise SAIL, Tata Steel, Ambuja Cement, India Cement, Binani Cement, ISPAT Industries, ACC, Sterlite Industries, UltraTech Cement, Tata Power, Power Grid, NTPC, BHEL, ONGC, Reliance Inds., Chennai Petroleum, IOC, BPCL, HPCL, GMR, Gammon, Jaiprakash, Simplex Infrastructure etc.

''Although RBI has eased the interest rates, the sign of abatement of the liquidity crisis are not visible. With the continuation of the present trends witnessed from the corporate results, the project activity in the infrastructure sector is likely to witness a slowdown,'' the Chamber spokesman says.

Among the core infrastructure industries, steel industry is feeling the heat of decline in global steel prices, witnessing a fall of 52.08 per cent in net profit in the second quarter of fiscal 2008-09 over the corresponding period in 2007-08 on account of a 6 percentage points dip in production growth rate along with an upsurge of 24.81 per cent in the interest cost.

The outlook for the next quarter also remains bleak with steel companies announcing big cuts in their output in view of slowing demand.

The cement industry took a major hit in net profit with a decline of 20.56 per cent resulting from a deceleration of 4.3 percentage points in the production growth rate in Q2 FY 2008-09 over Q2 2007-08 as a result of slowing demand due to contracting construction activity. The interest cost of the cement companies rose by 13.18 per cent.

Despite the decline of 3.8 percentage points in the production growth rate and a steep rise in interest cost to the tune of 37.38 per cent in the second quarter of this fiscal over the corresponding period last year, the power sector registered the highest increase (among the core infrastructure industries) of 8.72 per cent in the net profit, a positive sign to keep a healthy pace of the economic development going.

During the quarter, the crude oil price fell by 25 per cent while the domestic production declined by 3.7 percentage points in Q209 as compared to Q208. The oil exploration and production companies witnessed a whopping 144.81 per cent rise in interest cost that led to a near zero growth of 0.88 per cent in net profit.

Due to a staggering rise of about 200 per cent in the interest cost and heavy losses on account of then spiraling crude oil prices, the petroleum refinery segment was the worst hit sector with a decline of whopping 314 per cent in net profit. The sector witnessed a negative growth rate of 0.9 per cent in production activity.

However, the outlook for the third quarter may improve with crude oil prices shedding close to 38 per cent till date in Q3.

UNI AK SG RK1830

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