Corporate results for the third quarter have almost all been announced and, in some ways, have caused considerable optimism among observers and investors. After all, as Table 1 shows, net profit growth has remained high year-on-year even if it has slipped slightly sequentially. This is a relief after the tough quarters in 2011-12, when profit growth was deep in the red. However, also visible in Table 1, net sales growth paints a far less pretty picture. It is near-stagnant sequentially and has been steadily falling year-on-year. However, it seems that, at least, India Inc is making a return, which it wasn’t for much of last financial year. As Table 2 shows, net profit margin has been beating inflation for a few months. And, 40 per cent of firms have shown either a growth in profit or moved from losses to profit in this quarter, as Table 3 lays out. Deconstructing the numbers, however, is of some interest. As Table 4 shows, Other Income – such as gains due to currency movement — is still relatively high, if a slightly smaller proportion of net sales than it was at points in 2011-12. Worryingly, it appears while sales are stagnant, cost control appears to be the source of profit growth, as Table 5 shows. (Click for tables & charts)
This will lead to questions about sustainability of the corporate strategy to grow profits – costs can’t be cut forever. It is also important to note that continuing delays by the Reserve Bank for a deep cut in interest rates continue to hurt Indian firms; as Table 6 shows, interest costs are a steadily increasing component of total income. Table 7 lists sectors that have done well and those that have done badly. Worryingly, leading sectors like capital goods and high employers like textiles are still showing poor profit margins.
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