Q1 Results Show Corporates In Dumps

The first quarter results (April-June 1998-99) of six refineries and private sector giant, Reliance Industries Limited (RIL), seem to have rescued corporate India from what could have been its worst-ever performance.

A study of 406 companies, which have declared their April-June 1998-99 results so far, shows that their net profit in this period rose by only 8 per cent and sales increased by 16.6 per cent over the same months of 1997-98.

But if one excludes RIL and the six refineries _ BPCL, HPCL, IOC, MRPL, Madras Refineries, and Cochin Refineries_ the net profit of the remaining 399 companies shows a staggering decline of 18.5 per cent. Even in sales, the 399 companies could post only a modest 5.7 per cent rise in the first quarter of 1998-99.

Interestingly, analysts prefer to exclude the results of oil refineries while assessing the performance of corporate India. They argue that their performance is inflated because of the dismantling of the administered pricing mechanism, effective April 1, this year. A comparision of their performance in the first quarter of the current year, over 1997-98 would not be strictly valid, they say.

The refineries, which accounted for 45.31 per cent of sales and 45.49 per cent net profit of the 406 companies, showed sales growth of 27.9 per cent and a whopping 50 per cent increase in net profit.

The performance of RIL, which bucked the trend with over 37 per cent rise in sales and 17.6 per cent increase in net profit, also helped the corporate sector put up a better performance.

The April-June 1998-99 results of 400 non-refinery companies, including RIL, showed a lower net profit decline of 10.1 per cent and a higher sales growth of 8.3 per cent. The sales growth rate is sluggish, indicating that the corporate sector continues to suffer from a slowdown. During the same period, inflation based on the WPI was recorded at 6 per cent. Accounting for inflation, it is clear that sales growth in real terms has only been 2.3 per cent.

The poor show in the first quarter is also demonstrated by a drop in profit margins. The gross profit margin for 400 companies has declined to 10 per cent from 10.3 per cent and net profit margin has fallen to 4.2 per cent from 5.0 per cent in the first quarter of the previous year. However, the operating profit margin is stagnant at 16 per cent. This is because of a healthy growth of 18.3 per cent in other income.

The overall dismal performance conceals the inter-sectoral variations in performance. The sectoral trend, available so far, indicates that computer software companies have outperformed the corporate sector.

All the top software companies reported much better results. Ten software companies registered a hefty 93 per cent rise in sales and a robust 80 per cent growth in net profit. The net profit of Infosys Technology grew by 156.7 per cent, Satyam Computer by 137.4 per cent and that of NIIT grew by 91.9 per cent.

The two-three wheeler segment of automobile sector, headed by Bajaj Auto and Hero Honda, reported a comfortable 15.8 per cent growth in sales and 14.6 per cent rise in net profit.

The first quarter results of twenty pharmaceutical companies shows a healthy 29.8 per cent rise in sales and 27 per cent rise in net profit.

Automobile heavy and medium segments have suffered a setback, with Telco showing 31 per cent decline in sales and a net loss of Rs 35.6 crore compared with a net profit of Rs 90.5 crore in the previous quarter. Ashok Leyland's net Q1 loss mounted to Rs 33.3 crore from Rs 30 crore in the first quarter of 1997-98.Steel manufacturers continued to reel under demand-recession with SAIL and Tisco showing a big decline in sales. While Tisco's net profit declined by 59 per cent to Rs 27 crore, SAIL reported a net loss of Rs 311 crore compared with net loss of 126 crore the last time around.

It may be noted that 110 companies published their results without giving comparative first quarter figures of the previous year.For calculating rate of chnage for these companies the first quarter figures for last year have been arrived at by taking the average of the first half results (April-September) of 1997-98. Excluding the 110 companies, for which Q1 97-98 figures are not available, the corporate results of 290 companies show a very similar trend.

The study of 406 companies' results does not cover banks, financial institutions and non-banking finance companies.