Amidst slow growth in net sales, corporate India has shown improvement in terms of net profit and net profit margin in the second quarter of the current financial year, a study conducted by Care Ratings showed.
The study of the performance of 695 non-financial companies indicated that net sales increased by 12.7% in the second quarter of the financial year 2012-13 as against 23.7% for the corresponding quarter in the previous year. Against that, the net profit increased by 21.7% in Q2, FY 13 compared with growth of 6.6% in Q2, FY 12.
Consequently, there was an improvement in net profit margin from 9.5% to 10.2% during the quarter under consideration.
Net sales registered a growth of 12.7% in Q2, FY 13 compared with 23.7% in the previous year. The decline in growth rate of sales could be attributed to the low industrial production numbers with slack conditions in the economy. IIP growth in the months of July and August (the latest for which information is available) was 1.2% as against 3.5% last year. Growth in the core industries, which account for 37.9% of IIP, witnessed a slower growth of 2.8% during the quarter July-September 2012 as against 4.9% in 2011. Clearly, production was down this quarter.
Change in stocks increased to 94.9% in Q2, FY 13 (13.6% in Q2 FY 12), indicating higher inventory levels in the manufacturing sector. Moderation in consumer demand may have contributed to the build-up in such inventory stocks.
The study further says that total expenses grew by 13.3% in Q2 FY 13 as against 26.0% in the same period last year.
A comforting factor has been that the growth in raw materials expenses witnessed a significant decline from 30.2% in Q2, FY 12 to 13.8% in Q2, FY 13. This is mainly because of decline in the average inflation from 7.9% in the second quarter of FY 12 to 6.1% in the second quarter of current fiscal, thereby bringing down the nominal value of raw material purchases.
Salaries and wages saw a marginal decline in growth, from 18.0% in Q2, FY 12 to 17.7% in Q2, FY 13.
Banking sector
The performance of 24 banking companies showed that net sales (interest income) increased by 19.6% in Q2, FY 13 as against 37.5% for the corresponding quarter in the previous year. Interest expenses, however grew at a higher rate of 21.7% (51.1%), thus putting pressure on growth in net interest income. The growth in ‘other provisions and contingencies’, which includes provisions for NPAs moderated to 17.9% (22.4%) in Q2, FY 13. The net profit saw a marginal decline in growth rate to 14.8% as against 15.6% in the second quarter of the previous year. Consequently, net profit margin continued to be under pressure and declined to 12.1% as against 12.5% last year.
A concern that has developed during this period was the build-up in non-performing assets (NPAs). Gross NPAs increased by around Rs 43% from Rs 51,670 crore to Rs 73,398 crore for these 24 banks. Net NPAs increased by 63%.
Gross NPAs and the net NPAs increased to 2.71% (2.25%) and 1.26% (0.92%) of advances respectively in the second quarter of the financial year.
More significantly, gross NPA has increased by Rs 22,178 crore in Q2, FY 13 on year-on-year basis while the advances have shown an increase of Rs 4.31 lakh crore, resulting in incremental gross NPA ratio of 5.1%. This high growth in NPAs may be attributed to the lower growth in industry as well as sales of the corporate sector. The impact of the economic slowdown is getting reflected in the increase in NPAs. A continued trend of high NPAs and increase in restructured standard account has already attracted higher provisioning of 2.75% (from the earlier level of 2%) in the second quarter Monetary Policy Review conducted recently. Such provisioning buffer would contribute to the financial health and stability of the banking system, in particular.
Out of 24 banks, information on capital adequacy ratio was available for 23 banks. Except one bank, all the others maintained a ratio of above 10% in Q2, FY 13. 11 banks witnessed an increase in this ratio in the second quarter of the current fiscal when compared with the same quarter last year.
| Summary of performance | ||
| Growth (%) | Q2, 2012 | Q2, 2011 |
| Total Income | 24.1 | 13.2 |
| Net Sales | 23.7 | 12.7 |
| Other Income | 33.9 | 28.2 |
| Change in stock | 13.6 | 94.9 |
| Total expenses | 26.0 | 13.3 |
| Raw material expenses | 30.2 | 13.8 |
| Salaries and wages | 18.0 | 17.7 |
| Interest expenses | 47.5 | 9.0 |
| Depreciation | 9.1 | 6.1 |
| Provisions | (-)3.3 | 16.4 |
| Net Profit | 6.6 | 21.7 |
| Net Profit margin (%) | 9.5 | 10.2 |
| Interest expenses / sales | 1.94 | 1.88 |
| Source: CMIE | ||
