Minors Trounce Majors In The First Quarter

Sectoral trend for the first quarter of 1998-99 has been reasonably similar to one witnessed during financial year 1997-98.

The sectors that form a negligible part of the corporate world gained most while major companies have been under the grip of recession.

Software firms which account for a minuscule 0.6 per cent of the corporate sector turnover, extended the lead with sales growth of over 57 per cent in first quarter (Q1) 1998-99.

Backed by continuing export demand they showed a jump of 116 per cent in net profit.

The sectors which have shown an appreciable rise in sales turnover include automobile 2-3 wheelers (16.9 per cent), pharmaceuticals (20 per cent), sugar (28.2 per cent), inorganic chemicals (21.6 per cent), FMCG in consumer electronic segment (21.5 per cent) diamond & jewellery (21.9 per cent) and air conditioners (20.8 per cent).

One can easily draw a conclusion that the core sectors of the economy have been missing from the gainers list.

The manufacturing sectors which are growing in the recessionary economy accounts for a negligible portion of the sales and profits of the companies listed on the bourses.

For example, software firms which are on a profit binge account for about one per cent of total sales and about 1.5 per cent of net profits.

Diamonds & jewellery account for about 0.33 per cent of the sales and profits, FMCG in electronics (1.2 per cent sales and 0.9 per cent profits), FMCG in personalcare (over two per cent in sales and profits), pharmaceuticals (two and three per cent), automobile 2/3 wheelers (1.4 and 2.4 per cent), solvent extraction/vegetable oil (1.2 per cent and 0.4 per cent) and chemicals (about one per cent and 0.2 per cent).

Refineries which have shown a good growth in sales and profits in first quarter 1998-99 have benefited by the dismantling of administered pricing mechanism. The eight refineries in the sample study reported a 22.9 per cent rise in sales and a 37.4 per cent jump in net profit.

These refineries showed an overall sound picture of the corporate sector in the first quarter. This overwhelming accountability of refineries is because they account for about 26 per cent of sales and about 22 per cent of net profit of the corporate sector.

Sectors which continued to be in the recession have been steel, cement, tyres, cars, heavy/medium and light commercial vehicles, paper, engineering, auto ancillaries, textiles, machine tools, bearings, cables/telephone/power and electronic equipment manufacturers.

All steel and steel products manufacturers i.e., composite steel, mini or special steel, sponge iron, steel alloys and steel strips and bars have been under the grip of recession.

The steel sector which accounts for about nine per cent of sales and about two per cent of the net profit of the corporate sector reported first quarter sales growth of below one per cent from 6.5 per cent recorded in fiscal 1998.

From a record 54.4 per cent decline in net profit in financial year 98, they reported net loss of Rs 337.20 crore in first quarter 19 98-99.

Sales of steel alloys -13.8 per cent (net loss of Rs 3.2 crore), steel strips/bars/wires -24.7 per cent (net loss of Rs 4.8 crore) and mini steel 31.3 per cent (net loss of Rs 10.8 crore) declined in the first quarter while composite steel sales was up 1.8 per cent (net loss of Rs 323.4 crore) and steel HR/CR/GP/CG rose 6.4 per cent (net profit of Rs 9.48 crore).

Automobile manufacturers, heavy, medium and light commercial vehicles, who account for over two per cent of the corporate sales reported a decline in sales by 26.2 per cent.

From a net profit of Rs 43.67 crore in first quarter 1997-98 they plunged to a net loss of Rs 77.46 crore in the first quarter 1998-99 with Telco registering a net loss of Rs 35.63 crore, Ashok Leyland (Rs 33.2 crore) and Bajaj Tempo (Rs 9.23 crore).

Auto ancillaries showed a modest 3.8 per cent rise in sales turnover in the first quarter.

However, with the general recession in the automobile sector net profit declined sharply by 69.4 per cent.

Tyre firms first-quarter sales fell by 5.7 per cent compared with a growth of 5.2 per cent in FY98.

First quarter net profits showed an appreciable gain of 23 per cent on the back of MRF registering a 25.9 per cent growth in net profit.

The textile industry clocked a seven per cent growth in sales and a 30 per cent decline in net profit largely as man-made fibre firms reported a net loss of Rs 47.60 crore.

Transmission line tower firms registered first quarter sales growth of over 49 per cent and a nearly 2000 per cent rise in net profit.

KEC International headed the recovery with a 52 per cent climb in sales and a net profit of Rs 2.05 crore compared with a net loss of Rs 3.05 crore in first quarter 1997-98.

Four oil drilling firms showed a mirage-like 47 per cent growth in sales and a 83.6 per cent rise in net profit in first-quarter 1998-99. The current trend may be misleading because in 1997-98 they registered a marginal 1.7 per cent rise in sales, though the profit rise was hefty 51.5 per cent.

Solvent extraction and vegetable oil manufacturers resorted to trading which led to a 30 per cent jump in sales turnover.

IVP doubled turnover to Rs 138.84 crore while Ruchi Soya reported a 27.02 per cent growth in sales turnover.

Since the major players are offering discounts to grab marketshare, the profit growth was marginal at around three per cent. With this, net profit margin fell to a low of 1.4 per cent from around 1.8 per cent in the previous first quarter

The 924 corporates (excluding refineries, NBFC, banks and financial institution) showed a single digit sales growth of 9.1 per cent.

Other income which accounted for 34.6 per cent of PBT (28.58 per cent) grew by 26.2 per cent. This single factor contributed to the shoring up of the aggregate net profit of 924 firms by one per cent.

Other income played a vital role in shoring up net profit of many companies.

With BSES showing a substantial 388.47 per cent rise in other income, the power sector profit rose 23.4 per cent.

Exclude other income from profit before tax, their profit before tax would have declined by 86 per cent.

Telecommunication firms with overall net profit growing by 42.5 per cent reported 159 per cent rise in other income.

Aluminium firms also rode piggy back on other income (up 105 per cent) to show a 21.5 per cent growth in net profit during falling LME prices.

Dyes & intermediate firms would have been deep in the red had other income of Rs 30.17 crore not saved them.

Of the organic chemicals firms net profit of Rs 12.41 crore (Rs 2 lakh) other income constituted Rs 10.91 crore.