Lower raw material costs and a change in accounting norms have helped companies post better operating profits.
The top line may not be growing— in fact it’s falling— but India Inc’s profitability has improved in the March 2009 quarter. A study by the Business Standard Research Bureau shows that while revenues, for a clutch of 1930 companies (ex-banking and finance companies), have come off by about 4 per cent, operating profits have risen by 20 per cent.
Part of the reason for the strong operating profit margins is the lower cost of inputs whether steel or coal.—- total expenditure has come off by about 7 per cent. But companies have also been careful with other expenses—for instance FMCG firms have cut back on spends on advertising, others have trimmed their wage bills.
| PROFITABILITY SURPRISES | ||||
| Y-o-Y growth/fall (in %)* | ||||
| Total (1930 cos) | Nifty (37 cos) | |||
| Dec'08 | Mar'09 | Dec'08 | Mar'09 | |
| Net sales | 12.37 | -4.10 | 7.20 | -2.90 |
| OP | -18.46 | 20.03 | -13.00 | 8.85 |
| OPM(bps) | -493 | 384 | -468 | 251 |
| NP | -36.51 | 27.05 | -21.3 | 16.28 |
| * Quarter ended Source: BS Research | ||||
The other bigger reason though could be that foreign exchange losses haven’t been accounted for in the profit and loss account.
As Edelweiss points out in a study, several companies including GMR Infra, Sterlite Industries and Jindal Steel have not charged foreign exchange losses to the p&l but have opted instead to follow the amended AS11 regulations. They are charging the losses to balance sheet and thereby deferring them.
A glance at the performance of 37 companies in the NSE Nifty shows that while the fall in sales at around 3 per cent has been less steep compared to that for the bigger universe, the increase in the operating profit margins too has been more muted.
Many of the smaller companies have actually fared better than expected and have beaten the downturn. If the oil companies are excluded from the Nifty sample though, there’s a drop in the operating profits.
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That, however,is an improvement over the performance in the December quarter.
While margins for auto firms improved in the March quarter, they should expand further in the coming quarters as companies realise the full benefit of lower prices of steel.
Cement firms did fairly well and contrary to expectations, posted strong volumes. Besides, prices too held up. However, auto parts makers like Bharat Forge were badly hit by the recession in the world automobile markets.
FMCG companies have surprised the Street with volumes growing beyond expectations —-companies such as Asian Paints managed to beat the downturn in the bigger cities by selling more in the smaller cities.
Of course with exports and imports slowing down sharply, especially towards the close of the year, firms like Concor did badly in the March quarter.