India Inc has a tough act to follow in Q4

Rate of growth of net profit rose from 41.63% in Q4FY03 to 62.48% in Q3FY04.

India Inc's results for the fourth quarter of 2003-2004 (January-March 2004) will have to cope with rising expectations. That's because not only have revenues and profits at India Inc been increasing, but the rate of growth too has been steadily improving.

Maintaining, and even improving on, the sizzling growth rate notched up in the third quarter is the challenge that India Inc faces when fourth-quarter results start coming in.

The year-on-year rate of growth of net profits has been continuously rising for the first three quarters of 2003-2004. The rate of growth of net profits of India Inc rose from 41.63 per cent in the quarter ended March 2003 to 48.65 per cent in the first quarter of 2003- 2004 (April-June 03) to 52.34 per cent in Q2 (July-September 03) and to a whopping 62.48 per cent in Q3 (October-December 03).

Similarly, the rate of growth in operating profits has been rising for the last two quarters. The year-on-year operating profit growth rate was 13.02 per cent in the quarter ended June 2003, and moved up continuously every quarter thereafter to 16.93 per cent and 20.13 per cent.

The improvement in growth rates is not only because of lower interest outgo, although this has certainly played a major role in ensuring that the growth in net profits has been higher than the improvement at the operating level.

Lower taxation too has played a significant part in boosting net profit growth, with the rate of growth in tax outgo coming down from 24.17 per cent in Q1, 2003-2004, to 24.10 per cent in the next quarter and a much lower 16.68 per cent in the third quarter. (Finance and oil companies have been excluded from this study because the volatility in their profits would skew the overall results).

The rate of growth in corporate toplines too has been rising for the last two quarters, moving up from 10.62 per cent in Q1, 2002-2003 to 14.84 per cent and 19.94 per cent in the succeeding quarters.

In Q4, 2003-2004, India Inc will have to cope with a higher base effect so far as revenues are concerned "" sales growth was 13.81 per cent in Q4, 2002-2003, compared with 10.9 per cent in Q3, 2002-2003. On the other hand, the base effect will be lower for net profits, since the rate of growth of net profits fell from 51.04 per cent in Q3, 2002-2003 to 41.63 per cent in Q4, 2002-2003. Revenue growth will be helped by the good rabi harvest, but, on the other hand, the window of opportunity to lower interest costs further may have closed.

Analysts point out that growth rates should be higher for commodity producers in Q4, since steel, aluminium and petrochemical prices moved up during the quarter, compared with Q3. Cement prices too have moved up, while refining margins were at a 10-year high during the quarter.

On the other hand, analysts are less confident about the rate of growth in the auto sector, primarily because prices of key inputs have gone up. Similarly, there are concerns about the appreciation in the value of the rupee hurting software companies.