217 companies from the Moneylife sample of 1,190 companies that have declared results so far, reveals muted sales growth but strong operating profit growth during the March quarter

Of the 217 that have declared results so far out of the 1190 companies in the Moneylife database, net sales has increased by 8% year-on-year (y-o-y) for the March 2013 quarter. Operating profit numbers for the corresponding period rose 18% y-o-y, showing strong focus on internal operations in face of slack demand. However, interest and depreciation limited the increase in net profit to 12%. The net profit margin rose from 10.42% to 10.87%.
 

A more detailed analysis reveals some interesting findings. Despite nearly three out of four companies reporting increased y-o-y net sales, only little more than half of the companies saw their bottom line increase on a y-o-y basis. This shows that many companies are unable to contain the finance and depreciation costs. On the brighter side, nearly 60% of the 217 companies have reported increase in operating profit, as costs were contained on back of lower commodity prices, better inventory management.
 

The operating profit results reflect the performance of some of the largest companies so far such as Reliance Industries, Cairn India, Maruti Suzuku, Axis Bank, HCL Technologies, Hindustan Unilever, IDBI Bank, Adani Power, Idea Cellular are names of big companies who have grown their operating profit significantly. With the exception of TCS and Infosys, all the large companies reported expanding net profit margin, though marginally. Operating profit margins of corporate India have also increased from 16% during the March 2012 quarter to 18% in the March 2013 quarter.
 

Recently, the Reserve Bank of India (RBI) cut the repo rate by 25 percentage points in order to boost the economy so that companies will be able to borrow at lower costs and also be able to finance their debts cheaply. Whether this move will stimulate the economy, as we move towards the 2014 season, remains to be seen. However, two factors stand out: manufacturing and inflation. Whilst inflation has indeed come down, there’s a possibility that the rate cut may stoke it again. Also, manufacturing remains stagnant with the index of industrial production (IIP) slowing down. The cumulative growth in the mining, manufacturing and electrical sectors during April-February 2012-13 over the corresponding period of 2011-12 has been -2.5%, 1.0% and 4.0% respectively.
 

A small set of companies contributed to the 18% growth in corporate profits. In fact, 97 companies out of 217 companies in the Moneylife sample have recorded above-average profit.
 

Rise in OP            No. of Companies

25%                       79

20-25%                  7

15-20%                 11

10-15%                 14

10%                      106