India Inc delivered a surprise 22 per cent surge in net profits in the September quarter, belying news of slowing industrial growth, stalled investment plans and global hiccups.
Falling prices of raw materials ranging from steel and coal to palm oil lifted profit margins.
But the picture is hardly as rosy on the revenue front, where growth is on a down slide.
At 12.6 per cent, sales growth for the September quarter is the lowest in at least eight quarters.
This analysis considered the 914 companies that have declared their performance for the September quarter.
Banks, financial institutions and oil companies have been excluded as their cost structure is different.
Input costs
Companies managed operating profit growth of 20 per cent in the latest quarter over a year ago, accelerating from 12 per cent and six per cent growth for the June and March 2012 quarters.
The proportion of material costs to sales dropped to 50.5 per cent for the quarter under review.
In the same period a year ago, the proportion stood at 51.9 per cent.
Sectors such as FMCG, consumer durables, cement, petrochemicals, and gems and jewellery saw a sharp slump in raw material costs.
For instance, both Whirlpool of India and Blue Star managed to double their net profits this quarter.
Whirlpool’s revenues grew a meagre 12 per cent and Blue Star saw a sales decline of three per cent. But both companies saw a four percentage point dip in the material-to-sales ratio, which pushed up profits.
A stronger rupee also helped.
The September quarter last year saw companies bear the brunt of the depreciation in the rupee.
The foreign exchange pressure was much lower this year, with companies recording a net gain in forex.
Interest outgo too in this quarter was a mere five per cent higher than a year ago. These factors helped net profits (adjusted for one-off items) surge 22 per cent, well above the growth in earlier quarters.
Sales falter
A big worry for India Inc, however, was slowing sales. Sales growth for the 900-odd companies came in at just 12.6 per cent in this quarter against 18 per cent in the June and March quarters.
Growth rates have halved from over 25 per cent two years ago.
Even sectors that did better on the sales front benefited from higher selling prices rather than volume growth. ACC, for instance, reported a 12 per cent sales growth though volumes barely changed. It was the same for most cement companies.
Quite a few FMCG companies also saw healthy sales growth helped by price increases.
For instance, Hindustan Unilever reported 16 per cent FMCG sales growth for this quarter but the volume growth was just seven per cent.
Or, ITC that reported a 14 per cent growth in cigarette sales income though volumes barely grew.
The spectre of slowing sales raises questions about the sustainability of the recent profit growth.
A higher base with regard to costs has helped growth so far; this base effect may also dwindle down in the coming quarters.