Regardless of global crisis, political upheaval and slowing capital investment, India Inc has remained on a high growth path and has doubled its revenue in five years to a little over Rs 50 lakh crore. Despite limited pricing power for oil companies, weakness in international commodities and a rise in the cost of borrowing hurting profitability, combined net profit has risen a significant Rs 100,000 lakh crore in four years to Rs 2.97 lakh crore.
The financial aggregates for 2011-12 are far healthier than those for 2008-09, when the global economic slowdown led to a significant fall in the net profit of Indian companies. Sales growth in 2012 remained strong, up 23 per cent, but there was a profit decline of 10 per cent, led by a net loss of Rs 27,000 crore by 50 companies, mostly due to mark-to-market losses (revaluing assets at current values) on forex borrowing and hedging.
However, the Rs 100,000 crore revenue club, earlier comprising five oil companies, has now gone up to seven with Tata Motors and Tata Steel joining the big league, through two major foreign acquisitions. Analysts are expecting telecom giant Bharti Airtel and the AV Birla Group’s metals giant, Hindalco, to join the coveted list in the next two years.
In the past five years, companies have grown in profit and size in metal industries, technology, telecom, power, refining, automobiles, banking, pharmaceuticals and finance. Some retreat in profit growth has been seen for business groups having presence in construction, infrastructure and textiles, due to the economic slowdown.
The net profit for industrial giants in manufacturing and services sectors continues to be high. The number of companies with net profit of Rs 10,000 crore has swelled to five from two and those with net profit of Rs 5,000 crore or more increased from three to nine.
Major business houses have not faced cash flow pressure. The Tata Group aggregated net profit of Rs 106,375 crore in five years. Mukesh Ambani’s group, with the help of petrochemicals and oil gas giant Reliance Industries, took six years to earn a net profit of Rs 100,000 crore. The AV Birla Group more than tripled it net sales to Rs 1.67 lakh crore in six years and aggregated a net profit of Rs 27,000 crore in three years. The Vedanta group aggregated net profit of Rs 54,000 crore in five years, while telecom giant Bharti Airtel earned Rs 33,500 crore in five years.
It does not mean all is well and across sectors. There are failures, mostly on account of foreign acquisitions and excessive foreign currency loans to fund expansion. For example, heavy borrowing net profit for the Anil Ambani group fell sharply to Rs 2,800 crore from Rs 7,500 crore five years earlier. Suzlon Energy has witnessed stagnated sales, and has been in the red for three years after making a costly acquisition of REpower. Importantly, Tata Power, Videocon, Jet Airways, JSW Ispat, Kingfisher Airlines, Ranbaxy, MTNL and Essar Oil have reported a net loss of over Rs 1,000 crore each on account of forex loss and heavy borrowings.
The performance in 2011-12 appears a mixed bag. Cost pressure, lack of pricing power for the oil and gas sector, fall in prices of international commodities and a weak rupee impacted profit growth of major business groups in 2011-12. Among top business groups, while sales growth remained strong for the public sector, the Tatas, Mukesh Ambani and Mahindra, weak commodities’ prices put some growth pressure on the AV Birla and Vedanta groups.
Public sector units clocked five per cent growth in net profit despite a hefty decline in profit for three oil marketing companies. The Tata Group’s net profit declined around six per cent, led by net loss from Tata Communication and Tata Power and a sharp decline in profit of Tata Steel. Mukesh Ambani managed a to per cent rise in profit through Rs 6,124 crore worth of other income.
The AV Birla Group felt pressure on revenue growth, but net profit rose smartly by 27 per cent on account of a low base year and strong performance from Novelis. The Mahindra group outperformed all other majors with a strong 40 per cent growth in sales and profit, led by a turnaround in Satyam Computer.