Strong sales growth in Dec quarter buoys India Inc profits

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Cos seen catching up with peak operating performance of 2007.

M.V.S. Santosh Kumar

BL Research Bureau

A first take of Corporate India's December quarter results suggests that companies, besides benefiting from ‘cost-relief' have also demonstrated growth in sales.

If the initial set of numbers is anything to go by, the financial performance of companies may even better the peak performance of December 2007.

Standalone results of 355 companies (excluding banks and financial companies) that have declared results for the December 2009 quarter, show a 25 per cent growth in sales and 47 per cent expansion in adjusted net profits compared with a year ago numbers. JSW Steel, Bajaj Auto, Shree Renuka Sugar, Indraprastha Gas and Sun TV Network are among the top performing companies with growth in revenues and net-profits.

While sugar companies witnessed record turnovers, cement, auto and auto ancillaries, consumer durables and IT (barring Infosys Technologies) are key sectors that put up a strong show.

Revenue expansion

Unlike the September 2009 quarter, when net profits were largely driven by fall in input costs, this time around, the profit growth was supported by expansion in revenues as well. Fall in interest costs and a low base effect (December 2008) also propped up profit growth.

On a sequential basis too, these 355 companies' universe witnessed an 8.4 per cent growth in sales.

However, strong performance by Reliance Industries, which accounted for a good 27 per cent of the total sales for this universe, skewed the overall sales growth. Excluding Reliance Industries, the sales growth moderated to 11.4 per cent on a year-on-year basis. Around two-thirds of the companies have bettered their December 2008 quarter sales.

Overall, operating profits grew by 56 per cent for all the companies compared with a decline of 14.6 per cent in the previous year.

Operating profit margin (OPM) of all companies increased from 17.6 per cent to 22 per cent over a year. Interestingly, the OPMs in the latest ended quarter is close to the 22.5 per cent levels witnessed in December 2007. This suggests that companies are trying to catch up with the peak operating performance level witnessed in 2007.

While the operating performance of India Inc. may have improved, the net level margins are yet to climb to their earlier peaks. The net profit margin for the latest quarter stood at 11.9 per cent compared with 10.2 per cent in December 2008 and 14.3 per cent in December 2007.

Falling interest costs

Lower interest costs too partly supported net profits. The benefit of decline in interest rates over the last one year is apparent only in the results of the latest ended quarter.

This, combined with de-leveraging as a result of proceeds from qualified institutional placements in some cases, resulted in interest costs declining by 20 per cent compared with the December 2008 quarter.

Decline in Loss makers

With a revival in the economy, the number of loss-making companies also declined. Only 55 companies reported losses in the latest quarter compared with 113 companies in December 2008.

Companies such as Kingfisher Airlines, Wire & Wireless India, IBN 18 Broadcast and New Delhi Television continued to report losses in the latest ended quarter.

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(This article was published in the Business Line print edition dated January 25, 2010)
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