Financial Daily from THE HINDU group of publications
Sunday, Jul 31, 2005
Financial Daily from THE HINDU group of publications Sunday, Jul 31, 2005 |
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Trends Corporate - Performance Staging a surprise encore — India Inc sustains pace of profit growth Suresh Krishnamurthy
IF you thought profit growth in financial year 2005 was a tough act to follow, Indian companies have certainly come up with a surprise. They have sustained the breathtaking pace at which profits were growing in the first quarter of financial year 2006 too. The aggregate profit growth of a set of 420 Indian companies stayed above the 30 per cent mark for the quarter. Buoyant sales growth and subdued growth in depreciation and taxes have helped these companies maintain the growth rate. These 420 companies are part of the various BSE indices and account for a significant proportion of sales and profits of the listed universe. The list, however, does not include oil companies such as ONGC, Indian Oil and BPCL whose earnings have been distorted by the wild gyrations in oil prices. Companies from sectors such as steel (Essar Steel), capital goods (Bharat Earth Movers), paper (TNPL), hotels (Indian Hotels), shipping (GE Shipping), non-ferrous metals (Sterlite Industries) and chemicals (GHCL) reported substantial growth in profits. Apart from oil behemoths such as Indian Oil and BPCL, a number of companies from the banking sector reported substantial decline in profits. Indian companies were able to sustain higher growth in profits mainly by getting more out of their existing assets. This was evident in the lower incidence of depreciation costs. Companies that benefited from a relatively lower incidence in depreciation include NTPC, GAIL (India), GE Shipping, Maruti Udyog and National Aluminium. The reduced incidence of depreciation and taxes has also pushed up net profit margins (proportion of net profits to sales). Average net profit margin rose to nearly 9.2 per cent, up from 8 per cent in the corresponding period of the previous year. Almost half of the companies in this sample sported net profit margins of 10 per cent or more. Companies such as Forbes Gokak, Prism Cement, Rain Calcining, Bata and Titan reported profits in this quarter compared to losses in the corresponding quarter of the previous year. This is continuation of a trend of steady decline in the number of companies that are reporting losses. Out of the 420 companies, only 29 reported losses in the first quarter. In 2003 and 2004, the number of companies reporting losses in first quarter was higher at 41 and 55, respectively.
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