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506 firms blended the worst to post 30% rise in '00-01 profit

Samata Dhawade and Deepak Korgaonkar

First the good news. India Inc has ended fiscal 2000-01 on a sound note.

According to available data, 506 companies have reported a net profit growth of 30.37 per cent to Rs 143.63 billion for the year ended March 2001 on a 22.9 per cent growth in sales to Rs 1,540.44 billion. (The sample size does not include banks, financial institutions and non-banking finance companies).

Now the bad news. The bulk of the goodies came in the first half of the fiscal, while a slowdown crept into the second half.

During the first half, the companies clocked a 26 per cent rise in sales income and 42 per cent surge in profit. In the second half, sales income growth halved to 13 per cent, thus curtailing the increase in profit to 24 per cent.

The higher growth rate in net profits, compared to growth rates in sales, points to a situation where the corporate sector is extracting higher net profit margins. Indeed, the margins have increased from 8.8 per cent to 9.32 per cent in 2000-01.

But the source of which remains buried in tax giveaways and depreciation muddles. On the gross and operating profit levels, the story is of a painful squeeze. Operating profit margins slipped from 20.11 per cent to 19.54 per cent in 2000-01 as operating expenses increased 23.7 per cent to Rs 1,276.30 billion.

A small increase in interest costs (8.08 per cent), however, buffeted the fall at the gross profit level. Gross profit margins slipped from 15.95 per cent to 15.88 per cent in fiscal 2001.

Analysing the aggregates, it is obvious that infotech companies were largely responsible for loading the sales and net profit growth figures.

The 45 infotech companies, in the sample, scored a 53.7 per cent increase in sales with a 107.1 per cent rise in net profit.

The remaining 461 non-IT companies returned a 16.97 per cent increase in sales with a 22 per cent rise in profit. This is still a respectable growth rate, but unfortunately unrepresentative of the manufacturing sector as a whole.

A handful of companies, mostly in the public sector or natural monopolies, have reported out-of-line growth rates, with the effect of pulling the aggregates higher.

This would include GAIL, VSNL, IBP and MTNL. MTNL's net profit growth of 37 per cent during the fiscal was driven by a growth in direct exchange lines that increased by 9 per cent and also a rise in Internet and cellular connectivity.

GAIL banked on better volume growth and distribution network.

If these four companies were to be excluded, net profit growth would slip to17 per cent, even though topline growth rate would remain same at 17 per cent.

In the private sector, by virtue of its global scale capacities, Reliance Industries has emerged almost as a monopoly.

Buoyed by better price realisations, Reliance notched a 38 per cent increase in sales income and a 10 per cent in net profit during the year.

But a much higher increase in operating expenses, put a dent on the bottomline performance. Operating expenses for the quarter increased 41 per cent, largely owing to 50 per cent increase in raw material costs.

Excluding Reliance and the four PSUs, sales increased by 13 per cent, while net profit increased by 37 per cent.

The non-ferrous majors Nalco, Hindalco, Indal and Indo Gulf Corporation also put up a better-than-average performance. Indal benefited from the reduction in working capital owing to lower inventories.

Nalco benefited from excellent export performance which accounted for over 46 per cent of the company's sales. Hindalco banked on better product mix to return higher profitability.

Indo Gulf Corporation, also could put up a fair performance despite slowdown in its fertiliser division which accounts for more than 25 per cent of its sales income.

The reduction in urea retention price and bar on production took a toll on most of the fertiliser manufacturers.

Among sectors, pharmaceutical companies put up an extraordinary show. A 24 per cent increase in sales income and 37 per cent rise in net profit was way ahead of the rest of the manufacturing sector.

Sun Pharmaceutical, Morepen Lab and Unichem Laboratories returned excellent results.

In Cement, though the companies had a slow growth in sales, they still managed a better bottomline, thankfully owing to lower operating costs.

Cement major, ACC returned to black to report a net profit of Rs 570 million. Birla Corp with a 1 per cent rise in sales managed to reduce net losses from Rs 384 million to Rs 123 million during the year.

And companies which have diversified operations managed to beat the slump. Grasim stole the show with a 62 per cent increase in net profit, part of which was due to higher other income and lower interest payments.

Engineering companies have reported a mixed trend. Flex Engineering with a 24 per cent increase in sales income managed to reduce its net losses from Rs 217 million to Rs 7 million.

On the other hand, Engineers India, could return just a 1 per cent increase in net profit despite a strong 28 per cent increase in sales income.

The slowdown in demand is most evident in the FMCG sector. Marico Industries posted a 28 per cent growth net profit growth largely on account of a 160 per cent jump in other income. It also banked on lower inventory costs and operational efficiency during the year.

The major player in eye care, Bausch & Lomb turned into losses with a 45 per cent drop in sales. Muller and Phipp's sales dipped 18 per cent.

For automobile companies, too, the year was a mixed bag. The excellent performance by the two-wheeler major Hero Honda was marred by sluggish results of other commercial vehicles manufacturers.

Ashok Leyland reported a 13 per cent drop in net sales but still managed to report a 16 per cent increase in net profits. Hero Honda had 41 per cent increase in sales with 29 per cent rise in net profit.

Another two-wheeler manufacturer, TVS Suzuki, felt the heat of competition to report a 30 per cent drop in net profit despite a 15 per cent rise in sales income.

The increase in excise duty on cigarettes has impacted the topline. Sales income for VST Industries has increased 1.3 per cent while it dipped 8.3 per cent for Godfrey Phillips.

(With inputs from Kishor Kadam, Ashok Divse and R P Sharma)

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