But rising rates, input costs may be a cause for worry, going forward
Indian companies could defy high inflation and rising costs to turn in stellar results for the three months ended March 31, if numbers from close to 100 companies are anything to go by. The first 97 firms to announce March quarter results — mostly from sectors such as IT, petroleum, chemicals, auto ancillaries and finance — posted a 27.2% growth in sales and a 28% increase in net profit.
The year-on-year net profit growth at 28% is certainly healthy and in line with the trend in the last few quarters. The net profit growing at a higher pace than topline is a trend visible through all the four quarters of FY11, which has consistently improved the PAT margin to 12.4% in the March ’11 quarter.
A closer look at the early results, however, throws up some worrying trends. Spiralling costs show that there are a couple of worrying trends — inflation and rising interest costs. While the data of just 97 companies cannot be considered a representative sample, investors need to be wary.
India Inc, which successfully batted inflation till the December 2010 quarter, appears to be losing ground now. A spurt in input prices in the March quarter has brought down the aggregate operating profit margin. Input costs as a proportion to net sales rose to 52.9% — the highest in two years. Input prices rising faster than sales, point to the impact of inflation on corporate margins.
RBI resorting to rate hikes to battle inflation also seems to have started hurting India Inc. The 34.4% year-on-year growth in aggregate interest costs during the quarter was the highest in two years, a trend visible in the last six quarters. Around 8.5% of the revenues were spent to service loans during the March ’11 quarter, compared with 8% in March ’10.
India Inc, however, maintained or improved its profit margins through better efficiencies and controlling depreciation charges. The growth rate of the group’s other expenditure and staff costs consistently remained below the sales growth. In other words, Indian firms are generating more sales while keeping staff and other costs constant, which is an encouraging sign.
The depreciation charges for March quarter was slightly below the year-ago level, which was the case in December ’10 quarter as well. While the stagnation in depreciation is good for the companies’ bottomlines, it indicates a pause in corporate investments. This is another worrying factor, since investments create assets and capacity within the economy.
Several important sectors such as power, pharma, metals, auto or real estate do not find much representation in the first lot of 97 companies to announce their results. There is a possibility of a reversal in the trend observed in early results.
Indian companies could defy high inflation and rising costs to turn in stellar results for the three months ended March 31, if numbers from close to 100 companies are anything to go by. The first 97 firms to announce March quarter results — mostly from sectors such as IT, petroleum, chemicals, auto ancillaries and finance — posted a 27.2% growth in sales and a 28% increase in net profit.
The year-on-year net profit growth at 28% is certainly healthy and in line with the trend in the last few quarters. The net profit growing at a higher pace than topline is a trend visible through all the four quarters of FY11, which has consistently improved the PAT margin to 12.4% in the March ’11 quarter.
A closer look at the early results, however, throws up some worrying trends. Spiralling costs show that there are a couple of worrying trends — inflation and rising interest costs. While the data of just 97 companies cannot be considered a representative sample, investors need to be wary.
India Inc, which successfully batted inflation till the December 2010 quarter, appears to be losing ground now. A spurt in input prices in the March quarter has brought down the aggregate operating profit margin. Input costs as a proportion to net sales rose to 52.9% — the highest in two years. Input prices rising faster than sales, point to the impact of inflation on corporate margins.
RBI resorting to rate hikes to battle inflation also seems to have started hurting India Inc. The 34.4% year-on-year growth in aggregate interest costs during the quarter was the highest in two years, a trend visible in the last six quarters. Around 8.5% of the revenues were spent to service loans during the March ’11 quarter, compared with 8% in March ’10.
India Inc, however, maintained or improved its profit margins through better efficiencies and controlling depreciation charges. The growth rate of the group’s other expenditure and staff costs consistently remained below the sales growth. In other words, Indian firms are generating more sales while keeping staff and other costs constant, which is an encouraging sign.
The depreciation charges for March quarter was slightly below the year-ago level, which was the case in December ’10 quarter as well. While the stagnation in depreciation is good for the companies’ bottomlines, it indicates a pause in corporate investments. This is another worrying factor, since investments create assets and capacity within the economy.
Several important sectors such as power, pharma, metals, auto or real estate do not find much representation in the first lot of 97 companies to announce their results. There is a possibility of a reversal in the trend observed in early results.
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