Super quarter for India Inc

Sales highest in 5 quarters but margins under pressure.

India Inc has put up its best show in recent times in the April-June quarter. While the sales growth rate has touched a five-quarter high, net profit has zoomed to its highest in four quarters.

The performance has been powered by metal, cement, information technology, telecommunication, capital goods, auto ancillary, sugar and chemical firms.

The net sales of 1,023 companies that have announced their quarterly performance so far have risen by 31.7 per cent, and net profit by 29.7 per cent. Strictly comparable figures for the previous four quarters are not available at this point of time.

However, a performance analysis of a sample 854 companies (out of the 1,023 firms) "" common in all five quarters beginning April-June 2005 ""shows that this is the best showing put up by corporate India in terms of sales growth since the first quarter of 2005-06.

In terms of net profit growth, the companies have shown a substantial improvement over the last three quarters.

The 854 companies have shown a 31 per cent rise in net profit, and a 30.4 per cent rise in net sales. For the purpose of this study, only manufacturing and services companies were considered.

The eight high-growth sectors have registered a 45.5 per cent rise in net sales, and a hefty 98 per cent rise in net profit. If one excludes these sectors from the sample, the net sales growth for the residual sectors is marginally lower at 28.7 per cent, though the net profit growth is sharply down to 11.7 per cent.

With highly profitable firms commanding a 19.4 per cent share in sales and a 33 per cent share in profits, the overall profit margin of India Inc is down by over 50 basis points.

One basis point is one-hundredth of a percentage point. The operating margin has declined by 65 basis points to 18.84 per cent, and net margin by 14 basis points to 9.67 per cent. The interest cost of the 1,023 companies has risen by 24.1 per cent, depreciation provision by 17.86 per cent, and tax provision by 38.7 per cent.

Riding high on soaring metal prices and burgeoning demand, copper and zinc firms have reported a 445 per cent rise in net profit, on the back of 136-per-cent growth in sales, while aluminium firms posted 79 per cent growth in sales and a 105 per cent rise in net profit.

Integrated steel companies also surprised the market with 10 per cent profit growth, after three quarters of decline in net profits.

Due to the construction boom, cement producers recorded a 200 per cent rise in net profit, on 40 per cent growth in sales. Telecom firms have posted a 63 per cent rise in net profit and a 34 per cent rise in sales, while capital goods firms have come out with yet another good quarter. Their net profit growth has risen by 55 per cent for four quarters in a row.

Information technology, services, sugar and chemical sectors, too, ended their quarters with robust growth in sales and profit. However, oil marketing companies, and fertiliser, power, shipping, cotton textile, tea, alkali, sponge iron, entertainment and tyre firms have recorded a decline in net profit.

Pharmaceuticals (net profit up 14 per cent), automobile (net up 8 per cent), personal care (net up 1 per cent), and food products (net up 6 per cent), too, have a poor quarterly showing.