Big boys make small gains

The big boys of Corporate India, those with quarterly sales over Rs 500 crore (Rs 5 billion), did well in terms of sales growth, they fared far worse than the small and medium fry {(sales of Rs 50-500 crore (Rs 500 mn-5 bn){ when it came to net profit, in the quarter ended June 2004.

While the net profit of 2,000 companies grew by 46.1 per cent (year-on-year), Rs 500 crore-plus companies reported a net profit growth rate of 38.1 per cent.

However, these giants did better than the others in sales, clocking a 26.31 per cent rise in sales versus the 24.35 per cent growth reported by the entire corporate sector.

Companies with a sales turnover below Rs 50 crore lagged far behind the average, clocking sales growth of 11.65 per cent. Companies in the Rs 50-100 crore (Rs 500 million - 1 billion) and Rs 100-250 crore (Rs 1-2.5 billion) sales brackets posted a 21 per cent rise in sales, while the corporates in the Rs 250-500 crore (Rs 2.5-5 billion) sales bracket reported a 24.66 per cent rise in sales.

Operating margins in all sales brackets showed a modest rise of 10-20 basis points. This is because the corporate sector has been able to lower its finance costs by swapping existing loans with fresh low-cost borrowings.

Interest costs dropped by 5.5 per cent for the full sample of 2,000 companies, while the interest costs of companies with a turnover of between Rs 50 crore and Rs 500 crore fell by over 10 per cent.

The decline in interest costs and higher profitability has therefore worked to increase the interest cover. The ratio of operating profit to interest costs, which shows a company's ability to cover interest costs from its operating margins -- of the corporate sector increased from 5.21 times in the quarter ended June 2003 to 6.93 times in the quarter ended June 2004.

As

the low interest cost regime is biased toward big corporates, interest cover was higher for the giants. Corporate giants were relatively more comfortable, with interest cover of 11.01 times in the quarter ended June 2004 as against 8.40 times in the same quarter last year.

Small companies with a less than Rs 50 crore turnover reported some improvement, from 1.62 times to 2.10 times. The interest cover for companies in the Rs 250-500 crore sales bracket improved from 4.01 times to 5.50 times and of the Rs 100-250 crore companies from 3.42 times to 4.18 times.

But beyond all this, the bulk of corporates sales and profits was accounted for by the giants: the 73 Rs 500 crore-plus giants in this study accounted for 70 per cent of the sales, 71.7 per cent of the operating profits, and 80.4 per cent of net profits of the full sample.

The 1,466 small companies with sales of less than Rs 50 crore had a 5.9 per cent share of the total sales and 0.8 per cent of the net profits.

The 65 companies in the Rs 250-500 crore bracket had a 7.9 per cent share of sales and 6.6 per cent in the total net profit pie.

The 205 companies in the Rs 100-250 crore bracket had a 11.4 per cent share in sales and 8.6 per cent in the net profits of the full sample, and the 191 companies with sales of Rs 50-100 crore claimed a 4.8 per cent share in sales and a 3.6 per cent share in the net profits of the full sample.