The Hindu Business Line : Earnings growth slows, but stays robust — Operating margins fall; net profit margins rise

AFTER having stepped on the gas on the earnings expressway, India Inc, it appears, is gradually taking its foot off the pedal, if the growth numbers for the year-ended March 2005 are any indication.

Earnings growth for the just-concluded fiscal for 1500 companies is lower than that reported for the year-ended March 2004. Still, a growth of 33 per cent in aggregate reported profits on the back of a 25 per cent increase in net sales is nothing to be scoffed at.

In addition, the quality of profits is superior to that reported in the previous year. Much of the increase has come on the back of improved sales growth and lower contribution from other income. The deceleration is also not due to the performance in the quarter ended March 2005. Deceleration in growth rate has been visible through the year.

Out of the sample, roughly about 600 companies have reported profit growth of more than 20 per cent in FY05. A similar number of companies achieved this feat in FY04, too. However, only about 300 companies reported profit growth of more than 20 per cent in both years. The rest in FY 05 were new entrants to the list.

Companies that reported growth of 20 per cent or more in both years include Reliance Industries, Tata Steel, ICICI Bank, Infosys Technologies and Hindalco Industries. Among smaller companies, Balrampur Chini, Jubilant Organosys, Ingersoll Rand, Varun Shipping and Hindustan Construction have reported two consecutive years of profit growth of more than 20 per cent. Trends also indicate that operating costs are rising faster than sales putting pressure on margins. Profit growth has exceeded growth in sales merely because companies have been able to rein in interest and depreciation costs.

Incidentally, in FY04, these 1500 companies accounted for 50 per cent of the aggregate sales of all companies. Companies that contributed the other 50 per cent of the aggregate sales in FY04 are still to report their results for the financial year and quarter-ended March 2005. Large companies that are yet to report numbers include ITC, ONGC, HPCL, Larsen & Toubro and IOC.

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Earnings growth slows, but stays robust — Operating margins fall; net profit margins rise