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| India Inc: Decent show |
| Shobhana Subramanian / Mumbai Jul 02, 2009, 02:31 IST |
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Companies seem to have done reasonably well in a difficult environment.
That India Inc’s profits have come off by just 10 per cent in 2008-09 despite the challenging environment, especially during the last six months of the year, is commendable. However, the drop in profits is somewhat lower than it would have been had companies accounted for foreign exchange losses in the profit and loss account.
The amended AS11 regulations, however, have allowed companies to reflect the losses in the balance sheet and firms such as GMR Infra, Sterlite Industries and Jindal Steel have taken advantage of the change in rules. Although it is possible that some of the losses may be notional and may not ultimately crystallise, the numbers are nonetheless a tad deceptive.
On the whole though, the numbers for 2008-09 have been better than expected with the operating profit margin for a sample of 2,450 companies (excluding banks and financials) coming off by just 350 basis points.The strong growth in the top line of 20 per cent has helped cushion the margins as has the falling cost of raw materials such as steel and coal.
Besides, companies went all out to cut costs in the December 2008 and March 2009 quarters — total expenditure in the March 2009 quarter, for instance fell for most companies.
The fourth quarter numbers too have been reasonably good. As Morgan Stanley points out in a study, net profits for its universe of 96 companies rose 25 per cent in the March 2009 quarter, the best performance in seven quarters.
However, excluding the energy sector, net profits fell 10 per cent, the worst showing since June 1999 while the operating profit margins fell 350 basis points. That was probably to be expected given the downturn in the economy. For a year as a whole though, Indian companies seem to have done fairly well in a difficult environment.
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