Weighed down by a sharp rise in input costs and limited ability to pass on the burden to customers, India Inc’s operating margins took a hard knock in the first quarter of 2008-09 even though demand was buoyant as reflected in zooming sales.
Operating margins went down by 2.8 percentage points compared to the same period last year. As a result, net profit growth faltered at 18.44 per cent – almost the same as the fourth quarter but much lower than the 38.5 per cent growth in the first quarter last year.
The 639 companies that have announced their first quarter results so far saw 34.1 per cent net sales growth, which is much higher than the first and fourth quarters last year.
The slower growth in net profit is attributed to the 37.4 per cent rise in cost of production. The derivative losses on account of hedging export revenues on fears of rupee appreciation also contributed to the sluggish profit growth. The rupee depreciated by almost 7 per cent year-on-year (y-o-y) and many exporters were forced to provide for mark-to-market losses.
The exchange rate fluctuations also increased the cost of overseas borrowings of foreign currency convertible bonds (FCCBs) and external commercial borrowings (ECBs) of companies.
The numbers have been helped somewhat primarily by the performance of refineries, fertilisers, trading, mining and some other firms. These 112 firms have posted a 51 per cent rise in sales and 40.8 per cent rise in net profit. But operating margins of even these firms went down by 2.29 percentage points due to a 54.1 per cent rise in production cost.
Except for these firms, the aggregate net sales of the remaining companies has increased by 15.9 per cent and net profit declined by 1.6 per cent.
Nine fertiliser firms reported 89 per cent rise in net sales, thanks to higher volumes and increase in subsidy caused by higher raw material prices. No wonder, the sector’s profit was up 431 per cent y-o-y.
Sales of mining firms, which export iron ore, were up by 87 per cent and net profit 115 per cent.
Sesa Goa put up a powerful show with a 442 per cent rise in net profit and 182 per cent rise in net sales.
Reliance Industries (RIL) and two state-owned refineries did well on the sales front but the private sector giant faltered on profit growth.
The net profit of RIL moved up marginally by 13 per cent, while the profit of Chennai Petroleum and MRPL increased by over 100 per cent each on the back of robust refining margins.
