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G. Madhan

IT is always perceived that growing from a larger base is more difficult than from a smaller base. As the sentence suggests, it only appears to be a perception. If nothing, the financials results of 2,382 companies, in the just concluded quarter, suggests that the outcomes are asymptotic to this perception.

In the quarter ending September 2002, companies that turned more than Rs 100 crore as income performed well (see table) both in terms of sales and net profits, while the companies that turned below Rs 100 crore grew by a marginal 4.4 per cent in terms of sales and a paltry 0.8 per cent in terms of net profits.

What could be the possible reason behind this phenomenon? Is this phenomenon just a one-time occurrence? Does size really matter?

In this article, an attempt has been made to answer the questions and unveil the reasons behind this trend. For the purpose of easy understanding, the companies have been subdivided into five categories based on their income.

The Rs 1,000 crore and above segment did the star-turn in this quarter. This could be primarily attributed to the performance of the seven oil companies. For instance, Oil and Natural Gas Corporation registered 36 per cent growth in sales and 37 per cent in net profits. The whopping growth in oil companies can be primarily due to the fact that administered pricing mechanism was done away with. Reliance Industries, which falls under this segment, also did exceptionally well.

The success does not stop with Rs 1,000 crore and above segment. Barring the Rs 100 crore and below segment, other segments also did well. In the past, large companies in India were often criticised for being slow and inflexible. Their success was generally attributed to the neo-liberalism practised and their uncanny ability to twist the laws of land to suit their needs.

However, the success stories of companies such as Infosys, which positions itself as a company that is "driven by values", appears to have dented that perception to a reasonable extent. Infosys which falls in the Rs 500-1,000 crore segment has registered 35 per cent growth in sales and 12 per cent in net profits for the quarter ended September, compared with the same period last year. State-owned firms, such as Nalco and Bharat Electronics, also did well in this segment. While the former grew by 25 per cent in terms of sales, the latter grew by 46 per cent.

The mid-size segment (Rs 300-500 crore), was heavy on banks. The seven banks in this segment, including HDFC and Dena Bank, grew only by 9.5 per cent in terms of sales and 41.8 per cent in net profits. Both were below the segment average of 10.5 per cent and 42.8 per cent respectively in the same period lastyear.

In the Rs 100-300 crore segment, 11 of the 165 coporates are pharma and healthcare companies. Pharma companies in this segment, including Sun Pharma and Wockhardt, registered a 9.8 per cent growth in terms of sales and 24.2 per cent in terms of profits, over the corresponding previous quarter.

Interestingly, in the very small segment (below Rs 100 crore), of the 2,124 companies only very few, such as Henkel Spic and Swaraj Mazda, managed to outperform the segment average. Many companies in this segment performed poorly. Centurion Bank, Zee Telefilms, Tata Finance and Reliance Capital, to name a few, registered a drop in sales over the previous period.

An analysis of the last four trailing quarters of financial performance of India Inc also indicates that this trend is not a one-time phenomenon. Big companies generally managed to handle both sudden and gradual change with ease, without compromising the fundamental values.

They anticipated changes when things were going right, looked for the challenges and opportunities and capitalised on it. For example, Ranbaxy saw the moolah in the US market for generic drugs, almost a decade ago and made the requisite changes.

Most big companies successfully used their own inherent impediment of being large to their advantage, by merging themselves into competition-crushing combinations. Their capital base also enabled them to make strategic acquisitions, venture into new geographical areas and foray into new businesses.

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