A drop in sales growth and rise in interest burden in 2005-06 have dented the net profit growth of India Inc.
A Business Standard Research Bureau study of 1,450 manufacturing companies, which have so far declared their results (both audited and un-audited) for 2005-06, has shown that the net profit growth reported by these companies is the lowest in the last four years.
These 1,450 companies have posted an aggregate net profit growth rate of 26 per cent from Rs 50,267 crore (Rs 502.67 billion) in 2004-05 to Rs 63,460 crore (Rs 634.6 billion) in 2005-06. A common sample of 1,354 (of the lot of 1,450) companies shows the highest net profit growth rate of 40 per cent was recorded in 2004-05.
In 2003-04, the growth rate was 39 per cent and in 2002-03, 36 per cent. In 2001-02, the sample of companies had posted a single-digit (3.69 per cent) growth rate in net profits.
These 1,450 companies account for 55 per cent of the total market capitalisation of the Bombay Stock Exchange. There are 2,700 actively traded stocks on the BSE.
Two significant aspects of their performance are a drop in sales revenue growth and a rise in interest cost. The total sales of these companies have grown 19 per cent to Rs 7,10,369 crore (Rs 7103.69 billion) in 2005-06, against 21 per cent in 2004-05 {Rs 5,95,314 crore (Rs 5953.14 billion)}.
The aggregate interest burden of these companies rose 5 per cent at Rs 16,259 crore {Rs 162.59 billion (Rs 15,497 crore (Rs 154.97 billion)} last year against a 3 per cent decline in interest cost in the previous year.
However, there is a drop in the growth of input cost. This cost rose by 17 per cent to Rs 3,72,185 crore (Rs 3721.85 billion) in 2005-06 against 27 per cent {Rs 3,17,020 crore (Rs 3170.2 billion)} in 2004-05.
The operating profit margin of these firms, a parameter of efficiency, declined during the fiscal. The OPM fell by 30 basis points to 17.60 per cent in 2005-06 from 17.90 per cent in 2004-05. One basis point is one hundredth of a percentage point.
Their gross profit margin has remained virtually unchanged at 15.31 per cent in 2005-06 against 15.30 per cent in 2004-05, but the net profit margin rose almost 50 basis points from 8.44 per cent last year, to 8.93 per cent during the current financial year.
Refineries, oil and gas, packaging, entertainment and the forgings sector are the worst performers, reporting over a 20 per cent a drop in net profits during the fiscal.
On the other hand, constructions, non-ferrous metals, cement, steel, bearings, hotels, automobiles tractors, paper and cotton textiles have put up a good show, recording over 100 per cent growth in net profits.
Among other profitable sectors, pharmaceuticals, power, tea and coffee, mining, print media and food processing companies have reported 50-100 per cent bottomline growth.
Information technology, personal care products, engineering, sugar, shipping and paint industry have posted net profit growth rate of 20-40 per cent during the year.
Among individual companies, Grasim Industries, JSW Steel, Jindal Stainless, MTNL, Kochi Refineries, Bongaigaon Refinery, Biocon, Arvind Mills and BPCL reported fall in net profits during the fiscal.
On the other hand, net profits of Hindustan Zinc, NMDC,Suzlon Energy, Jaiprakash Associates, Eicher Motors, Lupin, Varun Shipping and Kirloskar Brothers have more than doubled in 2005-06.