The Hindu Business Line : Corporate India’s profit growth decelerates sharply in Q4

BL Research Bureau Corporate India’s earnings growth numbers have slowed, and quite sharply at that, in the fourth quarter (March 2008) compared with the previous year.

The 800-odd companies that have declared their March numbers till date have notched up a 17 per cent growth in net profits as against 40 per cent in the fourth quarter of fiscal ‘07.

On turnover, too, the growth rate is lower at 21 per cent as against 30 per cent in the previous year.

But there may be no need to press the panic button yet. The growth rate remains still in the strong double-digit zone. What is more, this time around, the earnings too are of better quality.

The net profit growth owes more to an improvement in core business operations than any contribution by way of ‘other income’, which has dwindled significantly compared with the previous quarters.

As a percentage of total income, ‘other income’ now stands at about 5.3 per cent, down from over 7.3 per cent in the previous quarter.

The inflated ‘other income’ component of India Inc in the previous three quarters had raised concerns within the investment community as to the quality of companies’ earnings. Also, if the now reduced ‘other income’ component reflects losses in forex and treasury transactions, as there may be, it eliminates another source of worry in recent times about corporate performance.

Interest dent

Both operating margins (26 per cent) and net profit margins (12.4 per cent) are at the same levels as last year. But interest costs did dent earnings, though. Compared with last year, interest cost as a percentage of operating profit has risen to over 50.6 per cent from 45 per cent. With interest rates showing no sign of softening in the near term, the pressure on this front may be here to stay. Surprisingly, tax incidence on an average appears to have reduced.

Sales picking up

For those worrying about a slowdown, the trend in sequential sales growth offers some hope. Sales growth for the 800 companies picked up pace in the March quarter, after slowing in the December quarter. From 6.2 per cent growth in the December quarter, revenues in the March quarter have grown at 10.4 per cent. But this has come at some sacrifice as net profits have, on a sequential basis, declined by 5.8 per cent. Lower operating profit margins (OPMs) and rising interest cost appear to have been the key villains here. On a sequential basis, OPMs have come under pressure; dipping by 1.3 percentage points.

A final picture of corporate India’s growth performance must, however, await the announcement of results of more companies as over two-thirds of the listed companies are yet to declare their numbers for the March quarter.

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