Out of 873 COMPANIES, 401 improved their profit, 39 made a turnaround and AS MANY AS 433 saw their combined net PROFIT crash by half.
Based on a sample size of 873 firms in the manufacturing and services sectors, India Inc’s performance in the quarter ended September 2008 is a mixed bag.
Out of the 873 companies, while 50.4 per cent have recorded either growth in net profit or a turnaround, 34.82 per cent have reported a decline in profit and the remaining 14.78 per cent have posted a net loss (see table).
The aggregate performance of the 873 firms in the second quarter has been dismal with substantially lower net profit growth of 4.52 per cent, compared to 20.77 per cent in the corresponding period of the previous year. In the first quarter ended June 2008, these firms had fared slightly better by registering net profit growth of 9.95 per cent.
Slower growth in net profit is attributed to the increase in the cost of production, which went up by 36.79 per cent, compared to net sales growth of 31.74 per cent. This affected the firms’ operating margins on net sales, which declined by 310 basis points (bps) year-on-year and 143 bps quarter-on-growth. In absolute terms, margins declined to 15.88 per cent from 17.31 per cent in the first quarter of the current year and 18.99 per cent during the second quarter of the previous year.
The decline in margins is attributed to the downturn in commodity prices and the government’s restrictions on price hike to control inflation. This affected mostly cement, oil marketing and steel firms.
Overseas borrowings increased interest costs as firms made provisions for mark-to-market losses on account of currency fluctuations. Also, a few firms showed a decline in profit due to realised losses on hedging of export revenue following the rupee appreciation till March 2008. The rupee has been depreciating since.
As many as 401 companies (45.39 per cent of the total sample) have been the best performers in the quarter under review by posting a rise in net profit. Though small in number, 39 firms (4.46 per cent) have reported profits compared to net losses made by them in the same quarter of the previous year.
The remaining 433 firms put up a poor show with combined net sales growth of 25.90 per cent compared to 31.74 per cent for the total sample companies. The cost of production of these firms increased 35.59 per cent, which resulted in a 638-bps decline in their margins to 10.64 per cent. No wonder, the combined net profit of these underperformers declined by 49.9 per cent.
The net profit of the 401 most profitable firms has increased by 30.42 per cent in the second quarter, the highest growth compared to the first quarter (20.18 per cent) and the corresponding quarter of the previous year (19.98 per cent). Profit growth of these firms has been driven by a 35.46 per cent rise in net sales and a slower 136-bps compression in operating margins, compared to a 310-bps decline in margins for the total sample.
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Growth in sales % | ||||||
Growth in net profit %
OPM %
Q1 FY09
Q2 FY09
Q1 FY09
Q2 FY09
Q1 FY09
Q2 FY09
Loss # = Net loss of Rs 1,328 crore in Q2 FY09 versus net profit of Rs 893 crore in Q2 FY08
Loss(a) = Net profit of Rs 129 crore in Q1 FY09 versus net loss of Rs 271 crore in Q1 FY08
Loss(b) = Net loss of Rs 526 crore in Q2 FY09 versus net loss of Rs 373 crore in Q2 FY08
The 39 firms that made a turnaround have reported a net profit of Rs 277.22 crore as against a net loss of Rs 134.24 crore in the same quarter of the previous year. In the first quarter ended June 2008, these firms had recorded a net profit of Rs 212.72 crore. The 39 firms did extremely well on the back of a 57.31 per cent rise in net sales and a 1,751-bps rise in operating margins.
The sectoral dissemination of the most profitable firms showed that auto ancillaries, two-wheelers, breweries and distilleries, cement products, chemicals, infrastructure, diamond and jewellery, power equipment, engineering, fertilisers, technology, ferrous and non-ferrous metals, personal care, pharmaceuticals (which did not have forex exposure), shipping and steel were the profit drivers.
