Sales in the services sector too rose by 36.8 per cent in the first three quarters of 2004-05.

Our Bureau

New Delhi, Feb. 20

COMPANIES in the manufacturing and services sectors have witnessed over 10 per cent growth in turnover and operating profits during the April-December 2004-05 period compared to the previous year, according to a CII report.

However, while there has been an increase in profit margins for the manufacturing sector, there has been a decline for companies in the services sector.

For the 544 manufacturing firms, operating margins increased from 14.8 per cent in 2002-03 to 17.4 per cent in 2004-05 whereas post-tax margins jumped four percentage points to 8.7 per cent.

During the April-December period in 2004-05, for the manufacturing sector the drop in interest costs has slowed down from the steep 22 per cent decline last year, according to the CII report. This reversal in the movement of interest costs is strongly reflected in the services sector with interest costs rising by 14.8 percentage points. This could point to the upturn in interest rates in the last couple of months, according to the report.

Sales in the services sector too rose by 36.8 per cent in the first three quarters of 2004-05.

Profitability, measured either as operating profits or post-tax returns, has also shown strong growth but not as much as in the manufacturing sector.

"There is a consensus within the industry that an increase in profit-after-tax (PAT) margins reflect greater capacity utilisation as sales volumes have increased, unit fixed costs have declined and have helped absorb the rise in variable input costs," a CII release said.

Through the average of operating margins (PBDIT as percentage as a percentage of net sales) is higher in the manufacturing sector, with a sustained proportion of companies clustering in the 10-15 per cent range, companies in the services sector are more evenly spread out across the 0-40 per cent range.

According to the CII report, the maximum number of firms earned margins between 0-5 per cent and 10-15 per cent.

Some six per cent of the companies earned negative margins (-20 per cent) and below. Services recorded a strong 8.2 per cent year on year growth in the second quarter.

Within the services sector, trade, hotels, transport and communications grew by 11.6 per cent over 11 per cent of the last quarter. However, financing, real estate, business services, and community and personal services moderated the services sector growth.

The success of hotels, transport, and communications in the services sector was primarily due to increased growth of construction from 3.6 per cent to 5.2 per cent.

Also, electricity, gas and water supply that grew 9.2 per cent, led to the success of these sectors, the CII report said.

(This article was published in the Business Line print edition dated February 21, 2005)
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