The rebound in the fortunes of the commodities sector as well as the impact of government concessions/spending in areas like automobiles have ensured Q3 sales growth is once again positive. The picture remains bright even after removing Reliance from the sample since its 92 per cent top-line growth biases it — this reduces top-line growth in the September quarter from 17.4 per cent to a still healthy 12 per cent.
Profits have risen sharply and are up to around 3.5 per cent of GDP, in comparison to just 2.2 per cent a year ago. Steel and auto ancilliaries have seen the sharpest hike in profit, and margins for steel firms are up to 12.4 per cent as compared to 0.7 per cent a year ago. After a slump due to the strike, entertainment sector margins are a healthy 19.9 per cent. Telecom profits are at an all-time low, but the rapid hike in the subscriber base ensured the telecom equipment and infrastructure sector sales grew the fastest, over 100 per cent.
Tax payments are up from 0.7 per cent of GDP a year ago to 1.3 per cent today — expectedly, advance tax payments were up a fourth as compared to a year ago. Not only are profits up, profitability is also up, but this needs to be interpreted cautiously. Net profit margins are up from 7.3 per cent a year ago to 9.4 per cent in the latest quarter, but they are down on a sequential basis — they rose to 10.6 per cent in March 2009, to 11 per cent in June, before falling to 10.2 per cent in September.
This is a result of raw material prices rising sharply — as compared to a slight decline from Dec 2007 to Dec 2008, raw material costs rose by nearly a third in Dec 2008 to Dec 2009. Salary and wages have risen by a much smaller proportion in the last year in comparison with that in the 12 months before that, but growth is picking up. In other words, it is not certain the profits’ performance of this quarter can be sustained. Given the impact of tax concessions and the Pay Commission arrears in boosting demand, the same applies to bottom-line growth. Not surprising then, that the credit policy chose not to hike interest rates at this juncture.