Introduction

The corporate sector’s financial performances of 300 private/public limited companies, based on their unaudited/audited financial results, collected from the website of Bombay Stock Exchange, have been analysed in this note. The sample companies, listed on BSE 500 Index, consist of only manufacturing companies excluding media, tourism, hotel industry and financial services. The period of analysis is the three quarters (April-December) results for 2004-05 and 2005-06.

Financial Performance of 300 Companies

Table 1 presents the combined financial performance of audited/unaudited financial results of 300 companies (public/private limited). The study exhibits a good performance in terms of sales and net profit.

The net sales of the selected 300 companies during Apr-Dec 2005 have remained almost stagnant at 18.3 per cent as compared to 19 per cent achieved during Apr-Dec 2004. In value terms, the net sales have grown up to Rs 7.02 lakh crore during Apr-Dec 2005 as against Rs 5.93 lakh crore in Apr-Dec 2004 and Rs 4.98 lakh crore in Apr-Dec 2003. The growth rate of other income has stood at 36 per cent during Apr-Dec 2005 as compared to 18.81 per cent in Apr-Dec 2004. The total expenditure incurred by these companies amounting to Rs 6.08 lakh crore has shot up by 21 per cent, at a slightly higher rate than that of net sales, exhibiting failure to a certain extent to control costs by these companies. A substantial rise in expenditure, which includes cost of raw material, power and fuel, manufacturing expenses, salaries of the employees, etc has bought down the level of operating profits.

The earnings growth at operating and net level appears to have been slowed down. Share of interest payment in gross profits that is interest burden has been lower at 7.92 per cent in Apr-Dec 2005 from 8.02 per cent in the previous year, reflecting a fall in interest cost. During Apr-Dec 2004, the interest rate had been lower at 7.29 per cent. From October 2004, the global interest rates have started gearing up resulting in a 5.87 per cent hike in the interest rate during Apr-Dec 2005. The tax provision has been lower basically due to lower profits before tax (PBT).

 

 

The effective tax rate (tax provision as a percentage of PBT) has been lower marginally at 27.46 per cent during Apr-Dec 2005 as against 28.02 in Apr-Dec 2004. The gross profit margin (gross profits to sales) on sales at 15.54 per cent and return on sales (PAT to sales) at 7.86 per cent during Apr-Dec 2005 has been lower than Apr-Dec 2004 at 17.17 per cent and 8.73 per cent, respectively, implies slowdown in profitability. Net profit has registered a 7.79 per cent growth during Apr-Dec 2005 over a high of 23.95 per cent in Apr-Dec 2004. The slow growth rate in the net profit has been mainly on account of miserable performance by the metals, oil marketing and refining companies.

Sector-wise Analysis

Overall

The 300 companies are classified among 15 sectors namely Agriculture, Textiles, Oil and Gas, Chemicals and Petrochemicals, Metals, Automobiles, Power, Healthcare, Information Technology, Cement, Shipping, FMCG, Capital Goods, Consumer Durables and Miscellaneous.

The overall picture of the corporate sector shows that, during Apr-Dec 2005, the tempo of Indian economy integrating into the global economy gathered momentum at a rapid pace manifested from the rise in outsourcing in the Information Technology (IT) and IT-based service sectors, growth in exports and in global acquisitions, in addition, rising consumption demand as reflected in the improved performance of the fast moving consumer goods (FMCG) companies. Here, in this section, we have taken a review of the performance of the 15 sectors, mentioned above.

The overall sector-wise performance reveals that sectors like FMCG, automobile, capital goods, IT, cement and engineering have continued sustained growth whereas oil and gas, metal and metal products have reported subdued performance.

Table 2 shows that the growth rate of operating profit during Apr-Dec 2005 has slowed down to 7.03 per cent as against 20.26 per cent during Apr-Dec 2004. Sectors that have witnessed a surge in operating profits include IT, FMCG, automobile, healthcare, textiles and miscellaneous. Shipping, cement, agriculture, chemicals and petrochemicals sectors have seen reduction in their operating profit. However, operating profit of metals, capital goods and oil and gas has suffered drastically due to higher expenditure.

 

However, if excluding operating profit of oil and gas and metal sectors the growth has stood at 30 per cent during Apr-Dec 2005 as against 15 per cent during Apr-Dec 2004.

 

 

Information Technology

The Indian IT industry has come a long way since its inception in the 1980’s. It has been successfully dealing with challenges and achieving steady growth. The Indian IT industry has realised the importance of gaining sector specific knowledge. For example, the leading companies like TCS, Wipro, Infosys and Satyam have started rendering outsourcing services like BPO (business process outsourcing), KPO (knowledge process outsourcing), telecommunication services and many more. At present, India is a preferred destination of the overseas companies for outsourcing software and IT services basically due to quality of the workforce, English language skills, cost advantages, project management skill, etc. Since 2004, there has been substantial rise in the technical collaboration with multinational companies (MNC’s). According to the National Association of Software and Service Companies (Nasscom) software development and services are the fastest growing industries in India. Indian IT industry is largely dominated by the software services with negligible presence in the hardware segment.

Table 4: Information Technology- 28 companies
Items	April-December 2005	April-December 2004	April-December 2003
(Rs crore)
Net Sales	26117.12	15863.90	13794.92
Other Income	749.94	414.55	492.45
Total Income	26867.06	16278.45	14287.38
Expenditure	19630.09	12100.50	10359.13
Operating Profit	7236.97	4177.95	3928.25
Interest	129.42	97.50	62.13
Gross Profit	7107.55	4080.45	3866.11
Depreciation	1164.98	742.74	656.50
Profit before Tax	5942.57	3337.71	3209.61
Tax	697.08	463.25	410.49
Provision and contingencies	44.9	38.66	8.87
Profit after Tax	5200.59	2835.80	2790.25
Extraordinary items	3.28	-0.71	1.90
Prior period items	0.24	0.00	0.00
Net Profit	5197.07	2836.51	2788.35
Equity Capital	4461.65	3233.45	2222.19

Indian IT companies have turned in consistently good results for a few years now. The combined results of 28 companies covered in IT segment for the period under review illustrates that the net sales has surged by 64 per cent (Rs 26,117 crore) as against 13 per cent in Apr-Dec 2004. The profitability of the IT companies both at operating and net level has galloped by 73 per cent at Rs 7,236 crore and by 83 per cent to Rs 5,197 crore, respectively, during Apr-Dec 2005. Among the large IT firms, such as Wipro, Infosys, Satyam, operating profits have grown in double digits. The sales revenues of some small IT companies like Aztec Software, Infotech Enterprise, Mastek and Rolta India have gone up substantially. However, the growth in profits has now come under pressure from an overall increase in salaries and expenditure in the sector. For the large IT companies like Wipro, Satyam, Infosys and HCL Technologies operating profit margins have risen substantially, in spite of increasing employee expenses.

The acquisition spree has continued in the IT sector for example; Wipro has acquired 100 percent shares in Austrian company NewLogic in an all-cash deal worth $ 56 million and it has also acquired the U.S. based mPower Inc in an all-cash deal worth $ 28 million. HCL Technologies has secured a $ 50-100 million multi-year contract from Autodesk to provide offshore application and data centre services to the American company. A new concept of contract sharing has witnessed during 2005, Tata Consultancy Services and Infosys Technologies have together won outsourcing contracts worth $ 400 million from Dutch bank ABN Amro (other three companies were IBM, Accenture and Patni).

The Indian IT industry is well set to achieve the new targets that the latest Nasscom-Mckinsey report has set out for the five-year period till 2010 despite challenges in the form of shortage of skilled workforce, exchange rate fluctuations, etc.

Automobiles

The Indian automobile industry has evolved rapidly with time. Earlier it was dominated by a small number of companies in each segment like Hindustan Motors and Premier dominated the car segment, Bajaj Auto in two and three wheelers, etc. After liberalisation new companies entered the market and bought new technologies that has changed the face of automobile industry. At present Indian automobile industry consist of several international players like Honda, General Motors, Ford, Hyundai, Escorts, TVS and some more.

The growth trend of Indian automobile companies has been on an upswing for the past few years. In the World, India is the largest three-wheeler market, second largest two-wheeler market as well as fourth largest tractor market and passenger vehicles market and fifth largest commercial vehicle market. The automobile industry is a highly competitive market with each player trying to capture as much share as possible. The automobile companies are expanding their horizons by acquiring land outside India and building manufacturing units, to reap benefits of economies of scales. Indian auto companies are moving aggressively into foreign markets. For example, Mahindra & Mahindra has opened an assembly line for its Bolero range pick-up vehicles in Uruguay; Tata Motors is gearing up to re-launch its best selling passenger car, Indica, in the United Kingdom under its own brand. Surge in expansion have been necessitated due to the sudden increase in orders from global suppliers and the strong demand from domestic market. Companies like Bharat Forge, Amtek Auto and Sona Koyo are expanding their manufacturing bases by acquiring global suppliers in Western countries like Germany, US, UK; aiming at catering global customers and setting up greenfield projects in low cost countries.

Table 5: Automobiles 36 companies
Items	April-December 2005	April-December 2004	April-December 2003
(Rs crore)
Net Sales	47208.12	39668.86	30782.40
Other Income	1735.15	787.41	803.45
Total Income	48943.27	40456.26	31585.85
Expenditure	41495.84	34920.21	26942.77
Operating Profit	7447.43	5536.05	4643.08
Interest	438.65	375.77	431.38
Gross Profit	7008.79	5160.28	4211.70
Depreciation	1463.51	1199.28	1027.59
Profit before Tax	5545.28	3961.00	3184.11
Tax	1532.22	1222.51	929.89
Provision and contingencies	235.52	4.44	25.00
Profit after Tax	3777.54	2734.05	2229.22
Extraordinary Items	-142.29	83.93	46.29
Prior Period Items	3.59	2.60	-6.57
Net Profit	3916.24	2647.52	2189.50
Equity Capital	4253.26	3950.61	3749.81

The combined results of 36 automobile companies show that their net sales have risen by 19 per cent to Rs 47,208 crore during Apr-Dec 2005 as against a rise of 28 per cent during Apr-Dec 2004; other income has augmented by 120 per cent at Rs 1,735 crore as compared to a decline of 2 per cent during the same period a year ago. The rise in the operating margins by these companies are on the account of stabilisation of the raw material costs, a result of the fall in global steel prices, especially in the October-December 2005. The profitability at net level has enhanced by around 48 per cent to Rs 3,916 crore as against an increase of 20 per cent in Apr-Dec 2004.

Compared to the aggressive growth rates witnessed in Apr-Dec 2004 (over Apr-Dec 2003), the volume expansion in Apr-Dec 2005 has been much lower in almost every segment of the automobile industry. According to the Society of Indian Automobile Manufacturers (SIAM), the total production of passenger vehicles (includes passenger cars, utility vehicles, etc) during Apr-Dec 2005 has grown by 6.18 per cent as against 27.37 per cent in Apr-Dec 2004. Domestic sales of commercial vehicles have been lesser at 6.56 per cent during Apr-Dec 2005 over 25.51 per cent witnessed during the same period previous year. The total exports of the automobile industry have remained almost stagnant at 32 per cent during Apr-Dec 2005 as compared to 32.77 per cent in Apr-Dec 2004.

The three giants of motorcycle makers, namely, Bajaj Auto, Hero Honda and TVS Motors, which control almost 90 per cent of the two-wheeler market, have posted healthy growth in sales and profits both in value and volume term. These bike makers have benefited from the rise in fuel prices in September 2005 and new fuel emission standards that have come into effect influencing the customers to opt for motorcycles rather than cars.

Healthcare

The healthcare segment mainly consists of pharmaceuticals companies. The pharmaceutical industry is one of the affluent sectors of the manufacturing sector. It is one of the largest, in the global pharmaceutical industry ranked 4^th in volume terms and 13^th in value terms. The year 2005 had been a landmark in the history of Indian pharmaceutical industry as it has undergone a change with New Product Patent Protection Law came into action from January 1, 2005.

A study of 27 healthcare companies exhibits a robust growth of 17 per cent in net sales during Apr-Dec 2005 over 6.24 per cent in Apr-Dec 2004. Although there has been rise in the expenditure of these companies by 17 per cent over 11 per cent in Apr-Dec 2004 the profitability has remained intact. A substantial rise in the expenditure has been basically due to surging research and development (R&D) activities by these companies, which eventually helped the company to enhance its performance in the long run. During Apr-Dec 2005, net profit of these companies has improved reasonably by 26.5 per cent as against a negative growth of 8 per cent over a year ago.

The domestic pharmaceutical companies are adopting strategies to adapt themselves to the new patent regime. They are concentrating on new methods such as contract research (drug discovery and clinical trials), contract manufacturing and co-marketing alliances. Indian companies are developing new chemical entities as well as generics to sustain their business. The Indian companies are spending huge amount to strengthen their R&D activities. For example – Nicholas Piramal’s R&D expenditure during Apr-Dec 2005 has stood at 26 per cent Rs 46 crore, on the other hand, Ranbaxy has spend Rs 469 crore on R&D during the 12 months ended December 2005, an increase of 38.9 per cent. To increase their presence globally Indian pharmaceutical companies are expanding their horizons. They are expanding their presence in countries like US, Europe, Japan and China. Recently China has emerged as an important market for Indian companies due to economical manufacturing, better infrastructure and low operational cost.

Among the major M&A deals during 2005 has been Nicholas Piramal’s acquisition of UK’s Avecia Pharmaceuticals for about Rs 76 crore, an example of a deal in custom manufacturing case. It has also acquired a 17 per cent shares in Biosyntech, a Canadian pharma packaging company. Gujarat based Torrent has acquired Heumann Pharma a generic drug company. DRL announced its tie-up with Denmark based Rheoscience A/S to jointly develop and market a new diabetes drug. To concentrate only on R&D activities, DRL has floated a new Rs 230 crore triangular drug discovery venture, Perlecan Pharma, with ICICI venture funds and Citigroup venture.

FMGC

The FMCG sector has been one of the largest sectors in India. The surging FMCG growth is the end result of rising disposable income and purchasing power by the consumers. The demand for FMCG prducts is gathering momentum from both urban and rural markets. The rural India is becoming the major growth driver for the FMCG industry. Products that have seen significant growth in rural markets include toothpaste, hair oils and shampoos.

The FMCG sector has posted good results – a key beneficiary of satisfactory monsoon, as it fuels rural demand. The growth of HLL and GCPL have been mainly driven by their home and personal care products and food business. A combined study of 22 companies including FMCG giants like HLL, ITC, Britannia, Nirma, Procter and Gamble (P&G), Nestle India, Colgate-Palmolive, Godrej Consumer Products, etc reveals, a 12 per cent increase in net sales at Rs 30,838 crore during Apr-Dec 2005 as against a rise of 9 per cent in the previous year. The FMCG sector has maintained its growth at good levels, aided largely by rising demand in urban market. However, rural demand has revived, but it is still lower compared to urban demand. Urban demand is strong enough to drive sales growth of FMCG leaders such as HLL, Marico, Godrej Products, etc. Even companies such as Colgate-Palmolive, which had been struggling from past few years have started posting good results. Rising demand and selective price hike has helped the companies to post satisfactory growth in revenues. Total expenditure of the sample companies has reduced marginally and stood at 10.43 per cent in Apr-Dec 2005 as against 11.25 per cent in Apr-Dec 2004. The net profit has risen sharply by 26 per cent during Apr-Dec 2005 as against a negative growth of 3.41 per cent over a year ago.

In November 2005 end due to pressure form mounting input cost, HLL and P&G have raised the prices of their detergent brands Surf-Excle and Ariel. This has been the second price hike; first was in February 2005 to counter pressure from rising raw material prices and packaging costs.

FMCG sector has also witnessed major mergers and acquisitions during 2005-06. The Indian FMCG majors made acquisitions in the global area. Tata Tea acquired the US based Good Earth and FMALI Herb Inc, while the acquisition of UK based Keyline Brands has made Godrej Consumer Products to establish significant presences in UK.

In the FMCG industry innovation is the only way to survive. This innovation may take form of product innovation or market innovation. The FMCG sector, after having underperformed for some time, is on the path to recovery, with acceleration in rural growth, increasing consumer spending along with the shift in product preference towards those being offered by the newer entrants. Further, smaller companies have started exploring rural markets, not through their own network as it is an expensive affair, but through other larger companies networks. For example, Godrej Consumer has tied up with ITC to sell its soaps through the latter's E-Choupal network. Retailing is also an emerging sector in India. The product distribution of firms has a long supply chain and the cost gets added at every step, thereby increasing the price of the product. The retail revolution is expected to provide boost to margins of the FMCG sector in India.

  

Cement

Indian cement industry is the world’s second largest cement market after China. The installed capacity of the domestic cement industry has increased substantially to touch 160.24 million tonnes as of December 2005 as against 153.85 million tonnes at the beginning of the fiscal year April 2005. Due to a surge in demand across all the sectors, cement companies led by ACC and Birla Cements among others have increased the installed capacity by 6.39 MT during Apr-Dec 2005, taking the total installed capacity to 160.24 MT.

Our study of 16 companies (including ACC, Birla Corporation, Gujarat Ambuja, Shree cement, Madras Cement, etc) shows that the growth in net sales has registered a lower at 17.76 per cent rise during Apr-Dec 2005 as compared to the growth of 26.82 per cent during Apr-Dec 2004. Operating profit margin (OPM) of these companies have risen marginally to 19.29 per cent in Apr-Dec 2005 as against 19.10 per cent in Apr-Dec 2004. The surging cement prices across the country have helped these companies to grab profits. The net profit has reported a growth of 63 per cent at Rs 1317 crore as against a rise of 104 per cent over Apr-Dec 2004.

The OPM of ACC and Gujarat Ambuja have risen by 19 per cent and 28 per cent respectively for Apr-Dec 2005. ACC has reported a whooping 151 per cent increase in net profit during Apr-Dec 2005 at Rs 535 crore as compared to 125 per cent during Apr-Dec 2004. Mid sized domestic firms such as Madras Cements and Shree Cement have also done well in profitability terms. The OPM of these companies have recorded a 20.70 per cent and 32 per cent rise, respectively. Gujarat Ambuja is considered to be one of the lowest cost producers in India. It has controlled costs through a mix of measures such as using large kilns and lowering of power and fuel costs. It has cut the energy cost by reducing the usage of coal through use of substitutes such as crushed surgarcane. The company also pioneered the utilisation of ship transportation to cut freight costs and has established infrastructure such as ports, freight, and handling terminals.

The Indian cement industry has a capacity to produce nearly 152 million tonnes of cement a year and the demand has been growing by almost 10 per cent annually, it has driven most of the cement companies to operate at their full capacity or peak production levels.

The Indian cement industry has witnessed about 10 per cent rise in dispatches during Apr-Dec 2005, despite a slight drop in exports and excessive rains in south India. The consumption demand for cement has risen substantially in states like Andhra Pradesh, Karnataka, Rajasthan, Himachal Pradesh, West Bengal and Chattishgarh.

The international giant Holcim has entered the Indian market in 2005 and acquired shares of two major cement companies ACC and Gujarat Ambuja. ACC, GACL, UltraTech and Grasim mainly dominate the Indian cement industry. The two larger players Hoclim (along with ACC) and Aditya Birla Group (with UltraTech and Grasim) have almost 50 per cent of the market share. Holcim owns a 35 per cent share in ACC. In future just as Holcim Indian cement industry might gather the attention from other international players as well.

A rising demand for cement is assured on the back of the government’s focus on projects in the roads and ports. Infrastructure sector development is a major driver for cement demand and accounts for about 20 per cent of the total demand for cement. The government’s National Highway Development Programme (NHDP), construction of the Golden Quadrilateral and the North-South and the East-West corridor projects are expected to maintain this upward trend in the demand in future.

Textiles

The textile industry is one of the largest segments of the Indian economy in terms of output, foreign exchange earnings and employment generation. It accounts for about 15 per cent of the country’s total export earnings in fiscal year 2004-05 and Apr-Dec 2005. Indian textile industry is multi-fibre based, using cotton, jute, wool, silk and man-made and synthetic fibres. Removal of quota constraint from January 2005 has opened up substantial export opportunities for the textile sector. After the dismantling of the quota regime, that restricted the developing countries from the free trade in textiles exports for a long time, Indian textile industry has seen a remarkable rise in the its export performance. There has been a change in coding system (exports) as well due to which Oct-Dec figures are very high. According to DGCI&S, India’s textile export has registered a 21.2 per cent growth during Apr-Dec 2005 as against a 5.9 per cent during Apr-Dec 2004.

Our study of 14 textile companies (includes Raymonds, Century Enka, Arvind Mills, Bombay Dying, garden Silk, Mahavir Spinning, etc) reveals, a 12.75 per cent rise in net sales during Apr-Dec 2005 to Rs 9,287 crore as against a rise of 18 per cent over a year ago. Operating profit has augmented by 30.54 per cent during Apr-Dec 2005 as against just 1.63 per cent during Apr-Dec 2004. Despite a heavy tax provision of 44 per cent (Rs 145.76 crore), net profit has augmented by 53 per cent to Rs 584 crore as compared to a decline of 4 per cent over Apr-Dec 2004.

Textile companies after witnessing a contraction in July-September 2005 quarter have recorded an expansion in both operating and net margins in October-December 2005. A major reason for margin expansion has been the decline in raw material prices, particularly cotton prices. Mahavir Spinning Mills raw material cost as percentage of net sales during Apr-Dec 2005 has stood at 42.6 during Apr-Dec 2005 as against 48.8 per cent during Apr-Dec 2004. Raymond has reported 15 per cent rise in net sales to Rs 940 crore, the main contributors of this growth has been textiles and denim divisions. The segment profit of textile and denim divisions have reported an increase of 65 per cent (Rs 140 crore) and 27 per cent (Rs 21 crore), respectively. Bombay Dyeing has posted 8 per cent rise in its net sales to Rs 800 crore during Apr-Dec 2005. The company’s textile and DMT (Dimethyl Terephthalate) divisions have suffered in revenues and profits. However, the company has been rescued by its real estate division, which generated profit of Rs 108 crore.

In the quest of modernisation, an increasing number of Indian textile companies are going for acquisitions in Europe and the US. The textile companies have found a way to counter the shortfall in domestic textile machinery production. After the phase out of quotas, the shortfall of machines has aggravated as India has only one major manufactures in textile machinery.

The textile companies are on the expansion mode. They have adopted several methods of expanding their horizons domestically and internationally such as Raymond Limited has signed a joint venture agreement with Italian company Lanificio Fedora to set up Rs 39.91 crore project for manufacture of blankets and shawls at Jalgaon, Maharashtra. The Phagwara based JCT through CNLT Malaysia, a company managed by JCT, has acquired a Composite Textile Mill in-Senegal on a long-term lease, as the African Growth and Opportunity Act provides concession for export to the US and EU.

Home textiles, one of the India staple exports to the US are gaining favour in the domestic market. The changing tastes of the consumer, aided by higher disposable incomes, have spun a new market for these products in India. Companies such as Bombay dying, Welspun India and Alok industries are spruced up for the new opportunity.

Metals

The metals segment consists of ferrous metals (includes steel and steel products) and non-ferrous metals (includes zinc, copper, aluminium). On an average, India produces about 38-40 million tonne (MT) of steel annually. The capacity utilisation by Indian steel companies like SAIL (Steel Authority of India Limited), JSW, Ispat, Essar Steel, etc is over 90 per cent. Construction sector, consumer durables and automobiles constitute about half the demand for steel in the domestic market. Currently India exports about 15 per cent of its production primarily to the West Asia and South East Asia.

During Apr-Dec 2005, India’s finished steel production has risen by 7.1 per cent to 34.1 million tonnes. According to ICRA, during the first nine months of 2005-06, the Indian steel industry has witnessed a healthy growth in finished steel production. It has stood at 31,402 thousand tonnes, a growth of 7.1 per cent over 29,319 thousand tonnes in the same period a year ago. The production of pig iron has surged by 34.1 per cent to 2,988 thousand tonnes during April-December 2005. For the first nine months ended December 2005, India has produced 6.92 lakh tonnes of aluminium, up by 6 per cent from April-December 2004. The country has produced 3.68 tonnes of copper, a growth of 23 per cent. The country’s total zinc output during April-December 2005 has been at 1.97 lakh tonnes compared with 1.76 lakh tonnes produced during the previous year.

Our study of 24 companies including top companies such as Hindalco, SAIL, Sesa Goa, Uttam Galva, Jindal Steel and Power, Madras Aluminium, JSW Steel and few more shows that net sales of the sample companies have grown by 8.86 per cent to Rs 53,246 crore during Apr-Dec 2005 as against a rise of 43 per cent during Apr-Dec 2004. A 12 per cent rise in expenditure at Rs 39,693 crore has eaten up operating profits that have stood at Rs 14,384 crore, hardly 1 per cent increase than the previous year. There has been substantial increase in the prices of raw materials such as iron ore, metallic scrap and coking coal during 2005. The net profit has declined by 5 per cent during Apr-Dec 2005 to Rs 7,030 crore as against a whooping increase of 132 per cent during Apr-Dec 2004.

In view of the over capacity of steel in the international market with China becoming an exporter, there has been pressure on steel prices and the steel prices have started declining since June 2005.

SAIL, India’s largest integrated steel maker, has reported subdued performance during Apr-Dec 2005. The rise in the prices of coking coal alone put an additional burden of over Rs 1,000 crore during April-December 2005 on SAIL. SAIL’s consumption of raw material has risen by 24 per cent to Rs 7,870 crore. The declining sales revenue has further hit the net profit of the company. Its net profit for Apr-Dec 2005 has declined by 29 per cent to Rs 2,935 crore as against a rise of 176 per cent in the previous year, despite control over interest cost.

Hindalco Industries has posted excellent financial results for Apr-Dec 2005. Its operating revenues from sales of aluminium has increased by 13.8 per cent to Rs 43,192 crore and copper revenue has risen by 6.55 per cent to Rs 34,225 crore, despite prices remaining tightened at London Metal Exchange. The company’s net profit has enhanced by 27 per cent to Rs 9,020 crore during Apr-Dec 2005. In the same period, Hindalco has produced 1.43 lakh tonnes of copper compared with 1.60 lakh tonnes over a year ago.

To cater to the increased demand most of the steel companies are in expansion mode. JSW steel has signed Memorandum of Understanding with the Jharkhand government for setting up a 10-million tonne per annum (MTPA) greenfield plant in Hesalong. It is planning to spend Rs 35,000 crore over five years on this plant, which is expected to be operational by 2010. Since the export market has potential, steel majors are also eyeing acquisitions abroad. Rising cost of production is a major of concern to the steel companies. The raw material prices have been exerting some pressure on the margins of steel producers.

Oil and Gas

India is one of the largest oil consumers in Asia-Pacific region. On an average, it imports around 70 per cent of its total oil requirement. The financial performance of oil marketing and refining companies has decelerated in 2005-06. This reflects the adverse impact of higher crude oil prices in the international markets with marginal corresponding hike in prices of petroleum products in the domestic market. The prices of petrol and diesel have been revised in September 2005, but not sufficiently enough to match the sharp increase in import prices. Also, LPG and SKO (superior kerosene oil) prices have not been revised which has resulted in increased subsidy, thus resulting in enhanced losses for integrated oil companies.

Among the top five companies (ONGC, IOC, BPCL, HPCL, RIL) only ONGC and RIL have reported positive growth in net profit during Apr-Dec 2005. IOC has remained India’s biggest company with standalone net sales of Rs 1,22,962 crore in Apr-Dec 2005; while, ONGC has remained the most profitable company with net profit of Rs 11,344 crore. OPM has turned negative for BPCL (-2.1 per cent) and HPCL (- 2 per cent). Among the three public limited companies ONGC, IOC, GAIL, OPM of ONGC has stood at 62 per cent followed by GAIL with 29 per cent and IOC with 2.85 per cent.

Table 6: Oil and Gas- 18 companies
Items	April-December 2005	April-December 2004	April-December 2003
(Rs crore)
Net Sales	372440.35	314801.88	272293.12
Other Income	6199.87	4513.07	3626.52
Total Income	378640.22	319314.95	275919.64
Expenditure	338940.65	273890.07	235355.39
Operating Profit	39699.58	45424.89	40564.26
Interest	1956.43	1959.43	1784.23
Gross Profit	37743.15	43465.46	38780.03
Depreciation	11195.17	10844.72	8920.26
Profit before Tax	26547.98	32620.73	29859.77
Tax	8514.23	9764.52	9094.07
Provisions and Contingencies	0.01	-0.11	0.31
Profit after Tax	18033.74	22856.32	20765.39
Extraordinary Items	-46.96	18.53	83.08
Prior period items	0.00	0.00	0.52
Net Profit	18080.70	22837.79	20681.79
Equity Capital	22012.78	19833.40	19443.80

The sample study of 18 oil and gas companies shows that the net sales of these companies have increased by 18 per cent during Apr-Dec 2005 as against 15 per cent over the same period previous year. The 24 per cent rise in the expenditure has taken away profit margins of these companies as against 16 per cent in Apr-Dec 2004. The profit margin has also declined due to subdued performance by these companies. Net profit of these companies has declined by 21 per cent to Rs 18,080 crore as against a 10 per cent rise during Apr-Dec 2004. Earning per share has come down to Rs 82 during Apr-Dec 2005 from Rs 115 over a year ago.

Indian companies are taking several steps to increase their oil and gas reserves by acquiring companies and oil fields abroad. The New Exploration and Licensing Policy aimed at attracting private investment in exploration. Indian companies are going global to acquire new oil fields. For example, ONGC Videsh Limited (OVL) has been making strategic investments in oil fields around the globe. OVL’s operations are spread in Iran, Iraq, Libya, Australia, Myanmar, Russia and Cuba. OVL and China National Petroleum Corporation Limited have jointly entered into an agreement to acquire PetroCanada’s entire shares in four production-sharing contracts in Syria.

Capital Goods

The engineering sector is the largest segment of the Indian industrial sector. India has a strong engineering and capital goods base. The important groups within the engineering industry include machinery & instruments, electronic goods, etc. A robust growth in this segment has continued on the back of healthy order book positions for companies like Bharat Heavy Electricals Limited, L&T, etc and strong demand both in the domestic and the export markets. For example, during Apr-Dec 2005, the order booking position of L&T has been higher at Rs.16, 211 crore, reflecting 80 per cent increase over a year ago.

In our study we have covered companies 30 companies such as Alfa Lavel, ABB, Larsen and Toubro (L&T), Crompton Greaves, BHEL, Bharat Earth Movers, Bharat Electronics, Havell’s India, etc. The combined net sales of these companies have augmented by 24 per cent to Rs 36,086 crore during Apr-Dec 2005 as against a rise of 19 per cent over a year ago. Companies like BHEL, Kirloskar Brothers, Crompton Greaves have shown consistent growth for about two years. The profitability of the sample companies has enhanced at each level and net profit has surged by 38 per cent to Rs 3052 crore as against a growth of 55 per cent over a year ago; earning per share has stood at Rs 98 from Rs 73.

The capital goods sector has witnessed buoyant year with domestic order inflows showing no signs of easing. Profit margins have improved as new contracts have been executed and economies of scale are driving the growth. This is in consonance with the robust growth impulses exhibited by the capital goods sector in overall industries production.

Chemicals and Petrochemicals

Our study of 24 chemicals and petrochemicals companies includes companies such as Asian Paints, Berger Paints, Godrej Industries, Goodlas Nerolac, IPCL, TamilNadu Petrochemicals, Indo Rama, Pidilite, etc. The combined net sales of 24 companies have shown a growth of 11 per cent at Rs 21,760 crore during Apr-Dec 2005 as against 12 per cent during Apr-Dec 2004 and other income has risen significantly by 40 per cent to Rs 450 crore. The profitability has enhanced at each level; operating profit has risen by 11 per cent at Rs 3,934 crore over an increase of 18 per cent during Apr-Dec 2004 and net profit has augmented by 39 per cent to Rs 1,984 crore during Apr-Dec 2005 as against 37 per cent a year ago.

According to ICRA, the operating rates of the petrochemicals companies have increased significantly resulting in increase in petrochemical margins. Thus, ethylene margins over naphtha increased significantly from US $ 382 per tonne during January-March 2004 to US $ 460 per tonne during April-June 2004 and then to US $ 616 per tonne during Jan-Mar 2005. However, during April-June 2005 and July-September 2005, the margins have declined and ethylene margins over naphtha were US $ 436 per tonne and US $ 358 per tonne, respectively. The prices continue to be high despite decline in margins mainly on account of high crude oil prices. However, during October-December 2005, the margins recovered.

Asian Paints is the market leader in decorative paints and Goodlass Nerolac is the leader in industrial paints. The industrial paint industry has witnessed growth in the automotive and commercial vehicle segment over the past three years. During Apr-Dec 2005, Asian paints has witnessed growth of over 25 per cent in its net profit as against 13 per cent over a year ago.

In the petrochemicals segment IPCL has posted 11 per cent rise in net sales to Rs 6,171 crore and net profit has galloped by 68 per cent to Rs 756 crore during Apr-Dec 2005. Operating rates of ethylene crackers, during the nine-month period under review, have continued to be high globally on account of sustained demand and lack of new capacities. IPCL has continued to operate its major plants at full capacity and production volume has touched 4.10 million tonnes, representing an increase of 7 per cent compared to a year ago. Production volumes of Polypropylene, Polyethylene and Poly Vinyl Chloride have increased by 2 per cent to 8.54 lakh tonnes; ethylene increased by 1 per cent to 7.14 lakh tonnes and propylene has increased by 2 per cent to 2.71 lakh tonnes.

Agriculture

The agriculture segment constitutes fertiliser companies (RCF, Deepak Fertilisers, United phosphorous, National fertiliser), sugar companies (Bajaj Hindustan, Balrampur Chini) and other companies such as Indo-Gulf, Jain Irrigation, etc.

Our study of 21 agriculture companies exhibits satisfactory financial performance than previous year. Net sales of the sample companies have increased by 14.7 per cent to Rs 20,702 crore during Apr-Dec 2005. OPM has risen marginally by 17 per cent from 16 per cent in Apr-Dec 2004. The gross and net profit has risen substantially by 23 per cent and 39 per cent at Rs 3,097 crore and Rs 1,651 crore, respectively.

Since January 2004, sugar prices have moved up globally. The Indian sugar companies are expected to benefit from the ongoing sugar boom. The top sugar companies such as Bajaj Hindustan and Balrampur Chini Mills have benefited by higher sugar price realisation. Net profit of Bajaj Hindustan has surged by 134 per cent to Rs 133 crore and Balrampur Chini Mills has reported a growth of 59 per cent at Rs 114 crore.

The total fertiliser production between April-December 2005 has registered a marginal rise of 0.2 per cent despite a 1.5 per cent fall in the output of phosphates fertilisers.

The central government, for the first time, has increased the subsidy on single super phosphate (SSP) fertilisers by about 50 per cent. For the first time, the Union government has increased the subsidy (for SSP fertilisers), which was applicable only to complex fertilisers earlier. The new subsidy will now be Rs 975 per metric tonne, up from the earlier Rs 650. Also, The state government has increased the retail price of such fertilisers by Rs 333 per tonne to Rs 4,010. The governments action is likely to benefit companies such as Indo-Gulf fertiliser, RCF, etc.

Miscellaneous

The companies that do not fall under the above sectors (as per BSE 500 Index) are classified as miscellaneous companies such as Adani Exports, Ballarpur Industries, Tata Chemicals, Voltas, Pantaloon, Trent Limited, Grasim Industries, JK Paper, etc. Net sales of these sample (25) companies have grown by 22 per cent to Rs 36,576 crore during Apr-Dec 2005 as against 36 per cent over a year ago. Other income has risen massively by a whooping 106 per cent to Rs 943 crore. Total expenditure has come down sharply to 15 per cent during Apr-Dec 2005 from 39 per cent from Apr-Dec 2004. Despite a high tax provision of 77 per cent at Rs 1,260 crore; net profit has surged by 77 per cent to Rs 2,794 crore as compared to 18 per cent during Apr-Dec 2004.

Tata Chemicals has reported a 20 per cent growth in net sales to Rs 2,764 crore during Apr-Dec 2005 as compared to and increase of 81 per cent over a year ago. Net profit margin has risen marginally and stood at 10.44 per cent during Apr-Dec 2005 over 10.02 per cent. In November 2005, Tata Chemicals has acquired a 63.5 per cent share in the UK based chemical company Brunner Mond Group. Acquisition of majority stake in Brunner Mond Group makes Tata Chemicals the third largest soda ash company in the world.

Pantaloon Retail (India) Limited has presence across various segments including food, fashion and footwear, home solutions, etc. the company has registered a growth of 84 per cent in net sales to Rs 1,206 as compared to a rise of 49 per cent over a year ago. Net profit margin has stood at 3.55 per cent over 3.34 per cent.

Grasim Industries, a flagship company of Aditya Birla Group, has reported a 5 per cent increase in net sales to Rs 4,840 crore during Apr-Dec 2005 as against 24 per cent over Apr-Dec 2004. However, the company’s net profit has suffered by 8 per cent to Rs 600 crore as compared to an increase of 31 per cent. The performance of Grasim Industries sponge iron segment has been severely hampered due to the shortage in supply of natural gas and steep rise in input costs.

Shipping

Our study covers only 5 shipping companies including Varun Shipping, Shipping Corporation of India (SCI), GE Shipping, Mercator and Container Corporation of India. The net sales of these companies together have risen by 8 per cent during Apr-Dec 2005 to Rs 7,350 crore as compared to a rise of 30 per cent over a year ago and other income has increased by 51 per cent to Rs 447 crore as against a growth of 127 per cent. Profit margins at operating and net level have stood at 45.16 per cent and 29.66 per cent during Apr-Dec 2005 as compared to 44.28 per cent and 29.68 per cent over a year ago.

Varun shipping has reported a whooping 137 per cent rise in net profit to Rs 123 crore during Apr-Dec 2005 as against a growth of 183 per cent during Apr-Dec 2004. This has been mainly achieved as the company has further expanded its tonnage capacity during the quarter, which has been well supported by steadily increasing freight rates in the LPG segment. SCI has reported subdued performance during Apr-Dec 2005; its net profit has declined by 14 per cent to Rs 692 crore over a substantial increase of 122 per cent during Apr-Dec 2004.

Increased spending on offshore exploration and production of oil and gas has increased order-book positions of Indian shipbuilders. ABG shipyard has an order backlog of Rs 1300 crore, while Bharti Shipyard has pending orders worth Rs 676 crore on its books. A major chunk of these orders is for offshore supply vessels and other such ships used by the oil and gas industry.

Consumer Durables and Power

In the consumer durable and power segment we have covered 4 companies each. Our study of consumer durables companies (4) shows 11 per cent rise in net sales to Rs 3,216 crore during Apr-Dec 2005 over a rise of 32 per cent a year ago. However, the other income of these companies has reduced drastically by 35 per cent to Rs 9 crore. Low growth in total income at 11 per cent during Apr-Dec 2005 from 32 per cent in Apr-Dec 2004 has resulted in declining profitability at operating, gross and net level. Net profit has deteriorated by 10 per cent to Rs 86.12 crore from a whooping 230 per cent growth during Apr-Dec 2004 whereas; EPS has gone down to Rs 19.80 from Rs 22.90.

During Apr-Dec 2005, net sales of power segment have stood at Rs 10,431 crore, a rise of 11 per cent as against Rs 9,350 crore. Though there has been an increase of 15 per cent in total expenditure at Rs 7,719 crore; operating profit has risen by 5 per cent to Rs 3,868 crore and net profit has gone up by 17 per cent to Rs 1856 crore as against a rise of 8 per cent over a year ago.

Tata Power has reported 14 per cent rise in total sales revenue at Rs 3,391 crore during Apr-Dec 2005; of which Rs 3,187 crore has been earned from power supply and Rs 204 crore from other businesses. A 20 per cent rise in total expenditure has brought down operating profit by 15 per cent to Rs 678 crore. Due to lower interest cost, net profit has augmented by 24 per cent to Rs 471 crore over a year ago. Reliance Energy Limited’s total sales of electrical energy during Apr-Dec 2005 has stood at Rs 2,408 crore against Rs 2,241 crore in the corresponding previous period, an increase of 7 per cent. The sales turnover of the EPC and contracts division has enhanced by 36 per cent at Rs 573 crore. The company has reported a growth of 32 per cent in net profit at Rs 481 crore over a year ago.

Conclusion

The two years study of financial performance of 300 companies reveals a slowdown in the growth rates during Apr-Dec 2005. The growth in net sales has remained almost same but profitability has gone down. The performance of corporate sector has been affected by several factors such as, in July 2005 ONGC witnessed as major fire break out that destroyed its offshore platform of Bombay High, heavy rains in Mumbai and Gujarat resulted in loss of production as a lot of plants were shutdown due to water-logging; ports were also affected. A surge in international crude oil prices has taken toll not only in the performance of oil companies but also that of other companies due to rising cost, hardening interest rates have also affected companies due to rising borrowing costs.

 

[This note is prepared by Vidya Kanitkar with help from Pooja Tanak for tables.]

 

Reference:

www.bseindia.com

Various media sources