India Inc’s profits are being squeezed. Nearly two months into the earnings season, sales growth has slowed, and profits and margins are hurtling down.
The fourth quarter (Q4) results of 506 non-financial companies analysed by Firstpost show that net profits for the March quarter declined by 14.4 percent from the corresponding year-ago quarter inspite of the fact that aggregate revenues rose by 13.5 percent. While sales increased, higher raw material costs, employee costs and interest outgo took a hefty toll on profitability. Net profit margin contracted to 7.8 percent from 10.4 percent from a year-ago.
To see who is hurting more from the slowdown, we went a step further and break down the 506 companies into two groups – those with a turnover of more than Rs 1,000 crore and those less than Rs 1,000 crore. Companies with turnover below Rs 100 crore were excluded from the study.
As is usually the case, larger companies (those with a turnover of more than Rs 1,000 crore) managed to post a better sales growth of 14.2 percent. Of the 102 companies in this group, 45 posted more than 20 percent growth in sales. Fertiliser companies have topped the list this quarter with a splendid growth in sales. Mangalore Chemicals & Fertilisers, Chambal Fertlisers and Coromandel Fertiliser reported a more than 130 percent growth in sales. Overall, 16 companies posted a fall in sales.
However, the increase in sales was offset by a more than proportionate increase in expenses. Consequently, operating profits grew at a tepid 1.3 percent. In addition, interest expenses also shot up by a startling 40.3 percent, dragging profits lower. An interesting point to note here is that the larger companies’ net profit fall of 12.5 percent was to an extent offset by the 42.5 percent gain in other income. Other income gains were seen in companies like Reliance Industries, Sterlite Industries and Adani Power.
Smaller companies post steeper fall in sales, profits
It’s been a bad quarter for smaller companies (companies with a turnover of less than Rs 1,000 crore). While sales grew by just 10.8 percent, profits slumped by 23.7 percent. Of the 404 companies in this group, almost 100 companies posted a more than 30 percent growth in sales while 109 reported a fall.
One thing that is very evident is that smaller companies have been hit badly due to an increase in expenses. In fact, the operating profit fell by 2 percent for the quarter compared to a gain of 32 percent in the corresponding year-ago quarter. Net profit fell at a faster pace of 24 percent as interest cost soared 44.5 percent.
Clearly, this quarter has been a bad one for corporate India and the brunt is certainly seen in the profit margins of these companies.