The Hindu Business Line : Rise in non-core income of cos in 2004-08 period

Bangalore, May 3 Income from non-core sources – extraordinary income, income from financial services and other income – played only a small role in improving the toplines of Indian manufacturing between 2004-05 and 2007-08, the years of the financial boom.

This is despite the fact that financial services income and other income grew at a faster rate than total income over this period. Therefore, companies’ toplines would not have been directly hit by the reversal of fortunes on the capital market.

A recent sample study of about 4,000 manufacturing units – conducted by the Centre for Monitoring the Indian Economy (CMIE) – also points out that textiles, metals, machinery and transport posted a drop in annual profit growth between 2004-05 and 2007-08, indicating a downturn in these sectors.

However, chemicals, petroleum, non-metallic minerals and food and beverages sectors improved their profit growth over this period, maintaining the industrial momentum even as the annual rate of profit growth for the manufacturing as a whole fell from 22 per cent in 2004-05 to 16.6 per cent in 2007-08.

The CMIE report, titled ‘Industry: Financial Aggregates and Ratios’, points out that non-core income increased from 2.75 per cent of total income in 2004-05 (Rs 39,115 crore of Rs 14.2 lakh crore) to 3.47 per cent of total income in 2007-08 (Rs 77,422 crore of Rs 22.3 lakh crore). Financial services led this increase.

Sector variations

However, there are variations across sectors. Income from these non-core activities fell sharply as a proportion of total income in the case of textiles and food and beverages sectors. However, the increase was marked in the case of chemicals, petroleum, metals and transport sectors.

The report shows that in the case of textiles, income from non-core sources declined sharply from 5.4 per cent of total income in 2004-05 to 3.3 per cent in 2007-08. Food and beverages units posted a decline from 3.5 per cent to 2.6 per cent.

However, petroleum posted a rise in the share of non-core income from 1.3 per cent to 2.7 per cent. Similarly, metal products firms posted a rise in the proportion of non-core income over the four years, from 2.7 per cent to 4.2 per cent.

The non-core income of chemicals firms increased from 2 per cent of total income in 2004-05 to 3.2 per cent in 2007-08. In the case of transport firms, the increase was from 3 per cent to 3.9 per cent.

In the case of non-metallic mineral product firms, non-core income increased from 3.2 per cent of total income in 2004-05 to 3.9 per cent in 2007-08.

Income from financial services, which includes extending credit to business partners, increased from Rs 15,193 crore in 2004-05 to Rs 42,392 crore in 2007-08, almost three times, while total income increased 1.6 times.

As a result, the share of financial services in total income increased from 1.1 per cent to 1.9 per cent over four years.

Other income, or income derived from non-core sources such as investment interest, rentals and fluctuation in exchange rate, roughly doubled from Rs 6,605 crore in 2004-05 to Rs 13,619 crore in 2007-08.

Its share in total income increased from 0.46 per cent to 0.61 per cent.

However, the rise in prior and extraordinary income, which implies earnings of a non-recurring nature, was modest. It increased from Rs 31,185 crore in 2004-05 to Rs 37,635 crore in 2007-08, its share in total income falling from 1.22 per cent to 0.96 per cent.