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S. Vaidya Nathan

A SUBSTANTIAL decline in interest costs and spurt in other income have helped India Inc overcome pressures on operating profits and report a healthy growth of 31.7 per cent in post-tax earnings.

Topline growth has been much lower at 11.3 per cent. But for the first time over the past year-and-half, expenses have risen at a faster pace than revenues. This has led to a 25-basis point slip in the operating profit margins (a basis point is one hundredth of a per cent). These are aspects that stand out in a study of the earnings cards of 1,200 companies, whose stocks are actively traded.

The effect of a steady decline in interest rates, better working capital management and replacement of high-cost debt by low-cost debt has started to have a significant impact on the bottomline by way of substantially lower interest costs.

Companies have also benefited in a significant manner from gains in the debt market due to trading opportunities presented by a decline in interest rates.

Banks and cash-rich companies such as Reliance Industries, Tata Steel, Indian Oil, and ONGC have been major beneficiaries. A part of the spurt in other income may also be accounted for the bullish phase in equities.

As far as the banking sector is concerned, the healthy jump in treasury incomes has been used to ramp up provisioning (up by 72 per cent) for non-performing assets (NPAs). The degree of scaling up on this score is reflected in Oriental Bank of Commerce moving to a zero-NPA status.

In a quarter when commodity-oriented companies and banks have enjoyed better profitability, the decline in operating profit margins at the aggregate level may occasion surprise. But it need not be a cause for concern as much of this is on account of lower margins posted by oil-sector bigwigs such as Indian Oil, Bharat Petroleum, Hindustan Petroleum and ONGC.

These companies account for about 35 per cent of revenues of the 1,200 companies, which also explains the modest overall topline growth.

Companies in the banking, automobile, auto ancillaries and steel sectors have been the star performers in the quarter.

Information technology majors such as Infosys, Wipro, Satyam Computer, Hughes Software and HCL Technologies have also come up with better growth rates than those over the past year-and-half and have not served as a drag on the big picture, a facet that was a notable element over the past three quarters.

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