India Inc's quarterly profit registered its biggest drop since the stock market regulator made it mandatory for firms to announce quarterly results in March 1998. The drop is directly related to losses by state-run oil marketing firms that were forced to sell fuel at subsidised rates and that too as the Indian rupee weakened.
Net profit dropped 34 per cent in the three months ending September 30, the third quarterly decline since March 1998.
The estimate is based on the performance of a sample size of 1,379 companies for which data are available with Business Standard. Net sales of the sample group rose 38.26 per cent.
Excluding the six state-owned oil firms and 240 loss-making firms, the profit of the sample group rose 6.4 per cent, the slowest rise so far and a sign of the pressures on India Inc.
India Inc as a group posted its first quarterly profit drop in September 2001, when the so-called internet bubble burst. Firms reported a 19.6 per cent decline in profit as the US, the world's largest economy, slowed, with the steel, automobile and textile sectors reporting large net losses.
Corporate profits dropped for the second time in the three months ended December 2005. In that quarter, oil refiners suffered again when the government disallowed them from raising prices. Prices of commodities like sponge iron softened and the white goods and non-ferrous metal sectors also reported losses.
However, net margins in December 2005 quarter were higher at 6.88 per cent, but lower than 8.16 per cent in the same quarter a year earlier.
In the three months ending September 30, 2008, the state-owned oil firms reported a loss of Rs 13,075 crore (Rs 130.75 billion) against a profit of Rs 6,052 crore (Rs 60.52 billion) in the corresponding quarter last year.
Apart from the profit drop, net profit margins of the sample group also plunged to 5.5 per cent, the lowest since September 2001, when the measure was at 3.6 per cent. Excluding the oil companies and loss-making firms, net margins grew 11.36 per cent in the period, but were still lower than 14.4 per cent in the same quarter of the previous year.
Of the 1,379 firms, 246 posted a net loss of Rs 16,582 crore (Rs 165.82 billion). These companies showed a profit of Rs 5,970 crore in the same quarter of the previous year.
The net margin of the loss-making firms was -8.22 per cent against a growth of 4.36 per cent.
The other sectors that joined loss-making oil firms in the second quarter are airlines, petrochemical polymers, telecom equipment and tyre makers.
The net profit of 500 firms fell 28.2 per cent or by Rs 6,918 crore (Rs 69.18 billion). Among these, auto ancillaries, breweries, broking firms, local pharmaceuticals, diversified, forgings and electric equipment dropped more than 50 per cent each.
Among others, net profit of automobiles, courier services, domestic appliances and cement and entertainment firms, fell between 35 and 50 per cent each.
The sample for the quarters ending September 2001 and December 2005 are not strictly comparable because new firms were listed later. The common sample of 546 firms since March 1998, however, shows a similar trend, but the decline in net profit varies for the quarter ending September 2001 (down 6.1 per cent) and December 2005 (down 11.7 per cent).