The fourth-quarter corporate results for the financial year 2011-12 are in, and they are not entirely reassuring. Most visibly, sales growth has continued to shrink, according to a sample of 1,476 companies compiled by the BS Research Bureau. As Table 1 shows, the trend over the past eight quarters is for year-on-year growth to decline. In Q4, 2011-12, it declined particularly sharply.
Costs appear to have moderated slightly for companies, allowing them to post a slight recovery in terms of year-on-year profit growth, as shown in Table 2. However, at 1.62 per cent year-on-year, these are still well below the near-20 per cent growth that they saw for much of 2011. Profits have been anaemic for some time, but, as Table 3 shows, less than a third of the companies were both profitable, and showed an increase in profits – even in this inflationary environment. The corresponding proportion two years ago was over half. (Click here for graph & tables)
Table 4 examines profit growth for the five largest sectors in the Indian economy by revenue – petrochemicals, banks, information technology and software, steel and automobiles. Except for steel, this has been their worst quarter of the year in terms of profit growth. Note also that secondary sectors like steel and automobiles are doing significantly worse than tertiary sectors, like banking.
This is reflected in the steep descent of the index of industrial production visible in Table 5. Profit margins – net profits as a percentage of net sales – are shown in Table 6. And, once again,it is clear that the tertiary sector appears to be doing better than the secondary sector.
Indeed, the margins are problematically low for industrial production. Table 7 reveals trends in margins for the overall sample. Profit margins are finding it difficult to even keep pace with inflation, implying massive economic opportunity costs for producers.