India Inc's profits run out of steam

Net profit growth rate dips to 17.37% in Q2.

The sparkle seems to be missing from corporate results this time. India Inc's net profit growth in the second quarter ended September 2005 has been a modest 17.37 per cent "" down sharply from 33.76 per cent in the corresponding quarter of the previous year.

A study of the unaudited quarterly results of 1,137 companies shows this is the lowest profit growth in the last 15 quarters.

The sales growth rate, too, has declined to 18.94 per cent from 24.89 per cent recorded in the same period last year. This is, however, marginally better than the 16.97 per cent growth achieved in the preceding quarter ending June 2005. India Inc had achieved sales growth of over 20 per cent for five consecutive quarters between March 2004 and March 2005.

Analysts attribute the poor growth in profits for the quarter ended September to rising cost of inputs. The raw material cost of these companies rose by 23.18 per cent. This indicates that for the first time after several quarters' companies have not been able to pass on the input cost burden to consumers.

This has pulled down margins, with operating profit margins declining by 123 basis points to 18.71 per cent, gross profit margins by 86 basis points to 16.96 per cent and net profit margins by 13 basis points to 9.69 per cent.

India Inc's 17.37 per cent profit growth for the September quarter has been the lowest since March 2002. Corporate profitability since then has been healthy, having hit new peaks in the quarters ended December 2004 and March 2005 when the sample of companies recorded over 50 per cent rise in net profit.

Steel and steel products, fertilisers, pharmaceuticals, engineering, textiles, man-made fibres, auto ancillaries and aluminium were the hardest hit.

However, information technology, telecom, automobile, two- and three-wheelers, cotton textiles, diamond and mining carried on from where they had left in the previous quarter.

Steel companies have posted a decline in net profit after several quarters. Net profit of the pharmaceutical sector rose marginally by 2 per cent, largely on account of a poor showing by Indian drug companies.

Oil companies have posted 3.49 per cent decline in net profit and the engineering sector has recorded 44.5 per cent. The fertilisers sector's net dipped by 4.13 per cent and that of auto ancillaries by over 10 per cent.