The corporate sector, excluding four oil and gas companies, has done extremely well so far in the first quarter of the financial year, with 482 companies having posted a better than expected 28.3 per cent rise in net profit on the back of a solid 151 basis points year-on-year and 296 basis point quarter-on-quarter increase in operating margins.
The sales growth rate remains the major concern, but rose 8.85 per cent. For the same period a year earlier, net sales of 482 companies had risen by 28.7 per cent, but profit rose by 5.7 per cent due to a 236 basis point decline in operating margins.
The overall performance of the corporate sector so far is well ahead of market expectations, with a 4 per cent decline in year on year net sales and a modest 7.99 per cent rise in net profit for the available sample of 486 companies. However, the results surprised all corporate analysts, with the sample companies having posted a robust 30 per cent rise in net profit over the sequential quarter ended March 2009. The sequential net sales, however has declined by 1.27 per cent.
| Q1 PERFORMANCE OF 486 COs | |||
| Year-on-Year growth rate | |||
| 486 cos | 482 cos* | 4 oil cos | |
| Net sales | -4.02 | 8.85 | -26.27 |
| Other income | 35.80 | 32.52 | 47.24 |
| Total expenditure | -6.39 | 6.19 | -29.91 |
| Operating margins | 16.81 | 15.81 | 19.35 |
| BPS change (Y-o-Y) | 80.00 | 151.00 | 38.00 |
| Raw material | -20.98 | 3.32 | -43.54 |
| Employee expenses | 9.41 | 11.07 | -15.29 |
| Interest | -10.07 | -17.81 | 33.74 |
| Depreciation | 23.19 | 23.99 | 22.22 |
| Net profit | 7.99 | 28.34 | -21.93 |
| Note: Net profit is adjusted for extraordinary income * Excluding four oil and gas companies | |||
However, the four oil and gas giants put up a weak show; if they are included, the year on year performance of all 486 companies appears to be weak. The four are ONGC, Reliance Industries,. Essar Oil and MRPL. The four oil and gas companies together posted a 22 per cent decline in net profit, due to a 26.3 per cent decline in net sales. The operating margins improved marginally by 38 basis points, owing to decline in raw material cost.
Overall growth is in line with expectations. with cement, fast moving consumer goods (FMCG), pharmaceuticals, sugar and telecom sectors buoying corporate sales and profit growth. Auto ancillaries, capital goods, engineering, entertainment and fertiliser sectors have not done well. Software service companies have done better than expected, with net profit rising sharply by 26.6 per cent on single-digit sales growth.
The major concern revealed from the result analysis is that capital goods and engineering companies have come out with the weakest quarterly performance. Though the capital goods companies posted a double-digit rise in year on year net sales, profit was up only marginally, by 3.8 per cent. Sequentially, sales were down 41.6 per cent and profit 55.7 per cent largely, due to BHEL’s poor quarter on quarter performance. The engineering sector did not do well, with year on year sales and profit more or less unchanged, while quarter on quarter sales and profit were down by over 30 per cent each.
The strong margins helped cement, FMCG and sugar companies to do well in profitability. Cement companies have come out with one of the best performances, by posting 48 per cent rise in profit on the back of a 400-600 basis point increase in margins. FMCG companies did well on the back of decline in cost of raw material and excise duty cuts in the government’s stimulus package. These companies have reported a 3.4 per cent rise in net sales, while profit rose by 48.9 per cent.
