India Inc's 2-year profit rally snapped

60% of 1,550 firms posted 8.8 per cent decline in net profit in 2005-06.

After a two-year dream run, India Inc's profit growth has faltered. Close to 60 per cent of a sample of 1,550 companies have posted 8.8 per cent decline in net profit for the year ending March 31, 2006.

The companies ranked at the bottom of the profit growth had recorded 3.75 per cent growth in net profit in 2004-05 and a hefty 31 per cent growth in 2003-04.

This study is based on two sets of samples "� highly profitable companies that have posted over 25 per cent profit growth and loss-making companies as well as firms with net profit between 1 per cent and 25 per cent. All companies in the sample have their financial year ending in March.

The study reveals that only 35-40 per cent of the companies with profit growth of over 25 per cent have skewed the overall profit growth rate of the entire sample every year.

For example, 660 companies have posted 63 per cent profit growth in 2005-06 while the overall profit growth rate for 1,550 companies has been a modest 12.4 per cent.

In 2004-05, profit growth of 533 companies was 74.7 per cent while the aggregate profit growth of the entire sample of 1,550 companies was 34.13 per cent.

Similarly, in 2003-04, net profit of 555 firms rose by 54.25 per cent, while the growth for the entire sample was 43.8 per cent.

The results for the year ended March 2006 signals end of the two-year honeymoon of India Inc with higher net profit.

If 12.4 per cent rise in net profit for 1,550 companies looks healthy, after adjusting for extraordinary profits, the profit growth rate declines to almost 11 per cent. The profit drivers in 2005-06 are from sectors which account for 25 per cent sales of 1,550 firms.

Among the high profit growth sectors, IT, textiles, capital goods, engineering, metals, telecom and pharma have aggregate sales of over Rs 20,000 crore each.

However, profit growth in these sectors moved up between 35-45 per cent. The IT sector with an aggregate profit of over Rs 10,000 crore, capital goods (Rs 3000 crore) and metals (Rs 5,000 crore) have earned hefty profits.

The sectors with over 100 per cent growth in profits are from the small and medium enterprises sector such as granites and marble, leather, cables, housing construction, hotels, packaging and paper.

Other key drivers among the profitable sectors are cement (profit up 366 per cent), infrastructure (85 per cent), mining (84 per cent), oil drilling (60 per cent) and pharmaceuticals (53 per cent).

The sectors that have posted between 10 and 25 per cent growth in net profit are automobile (24.5 per cent), chemicals (23.9 per cent), shipping (22.7 per cent), tyres (12.2 per cent), power (11 per cent) and paints (10.8 per cent).