Crisis fears fading away, Indian cos back in profit zone

There's little doubt that the financial crisis of 2008-09 had a drastic impact on the profitability of Indian companies, as most of them reported sharp falls in revenues and profits. Over the next two years, however, things started to improve and some loss-making companies swung into the black. Firstpost did an analysis of the BSE-500 companies to find out who these turnaround winners are.

For our analysis, we considered companies that made profits between September 2010 and June 2011 and had made losses for the corresponding period one year ago - between September 2009 and June 2010. Only those companies that churned in profit for the year to June 2011 were selected.

We narrowed our list to the following 5 companies.

More from Business

[caption id="attachment_75196" align="alignleft" width="380" caption="Things have started improving and some loss-making companies have swung into the black. Indranil Mukherjee/AFP"][/caption]

•Wockhardt: The pharmaceutical and biotechnology company derives more than 65 percent of its revenues from Europe and the USA. After reeling under the cost of high debt, the company managed to report profit owing to an improvement in its US and Indian generic business. In addition, its decision to sell its nutrition business to French food multinational Danone for $356 million (Rs 1576 crore) will help the company further lower its huge debt burden (Rs 3,200 crore) by paying off its lenders. For the June 2011 quarter, the company reported a net profit of Rs190 crore.

•Essar Oil: This oil and gas company operates a 14 million tonne per annum (mtpa) refinery in Gujarat. The company's profitability has been improving for the past few quarters owing to an improvement in gross refining margins. Deepak Darisi, analyst at LKP Securities, expects this expansion to improve the company's earnings by $4 to around $8-9 per barrel. Post completion, its refinery will have a capacity of 18 mtpa.

•Gujarat Pipavav: It is probably one of the few companies that is still quoting at a premium post its initial public offer (IPO) in September 2010 - its share price was Rs 67.10 per share on 30 August, compared with its issue price of Rs 46 per share. The company's strategy of using a part of its IPO proceeds to reduce its debt burden, along with an improvement in revenues, led to a visible improvement in the company's profitability. It has been reporting profits for the past three quarters after incurring losses since March 2008. Networth Capital, a brokerage, expects the company's profits to increase on the back of higher capacity utilisation levels.

•Pipavav Defence: India's largest and the world's fifth-largest shipyard moved into the black after posting losses for the period September 2009 to September 2010. The company is all set to become an integrated defence player as it has signed a contract with the ministry of Defence for the construction of five naval gunboats worth Rs 3,000 crore, thereby taking its total order book position to Rs 6,750 crore. For the June 2011 quarter, it reported a net profit of Rs 7.94 crore on a turnover of Rs 338 crore. Networth Capital expects the company's profits to increase in the next few years because of its improved order book position and its capability of producing ships at a fast pace.

•Development Credit Bank: After reporting losses for the years ending March 2009 and 2010, the bank started making profits after a restructuring process was carried out by its new management. Nirmal Bang, a local brokerage, is bullish on the company and has recommended a target of Rs 68 per share in a recent report. The stock closed at Rs 46.5 on 30 August.