India Inc: Small is sturdy

A Business Standard study shows that smaller companies have survived the downturn rather well

In a recent article, Stephen Roach, Chairman Morgan Stanley, Asia writes of how in 1991, Asia’s two giants had similar levels of income per capita. That was then. Now , he points out, China’s standard of living is more than three times that of India.

According to Roach, the dirty little secret of the Indian economy is that it has actually been performing much better beneath the surface than the China comparison might otherwise suggest. India, he says, has long had a much better micro story than China: a large population of world class companies a well-educated and IT-competent workforce and , outstanding entrepreneurs.
 

Small, but not too badly hurt

Qtr ended
Mar,09

 

Growth/Fall (in %) Large
(90)Mid
(144)Small
(154) Net sales5.902. 61-1.74 OP-0.64-12.49-13.28 OPM (bps)-120.00-270.00-170.00 Net profit2.88-28.80-19.85 Change over March 2008  quarter
Figures in brackets denote sample size

The March 2009 quarter numbers show how well many of India companies, and especially the smaller firms, have weathered the storm. Contrary to expectations, even very small companies have held up remarkably well with net profits not really coming off too sharply.

A Business Standard Research Bureau shows that for a sample of companies with a turnover (in 2008-09) of between Rs 1,000-3,000 crore, they were up just under three per cent year-on-year, while for a clutch of smaller firms with sales ranging between Rs 500-1,000 crore, the top line fell only 1.7 per cent.

That’s not too bad considering companies with a top line of over Rs 3,000 crore net sales were up just under 6 per cent. Smaller companies have managed their inventories and raw material costs fairly well ---the operating profit margins haven’t really shrunk too much.

A recent report by CLSA talks of how over SMEs are bouncing back---over half the companies spoken to, across the auto and engineering sectors, saw better capacity utilisation in the March 2009 quarter. Also, a third of the SMEs surveyed are actually talking of hiring once again, now that demand seems to be picking up and orders are flowing in.

Also interest costs have fallen in the March quarter with inventories easing. Indeed it’s the micro story that makes India such a compelling and attractive investment destination. Despite the challenges, and God knows there are enough of them, entrepreneurs, more often than not, are able to deliver.