Q1 results show big firms weathering slowdown better

Companies are generating decent growth in sales but are facing pressure on profit margins due to rising input costs, wages and interest. Of the 145 companies that have announced results so far for the June 2011 quarter, net sales grew 27 percent over June quarter 2010. The net profit grew 23 percent over the same period.

The operating profit margin (operating profit as a percentage of net sales) was 20.3 percent against 20.8 percent in the June 2010 quarter. The net profit margin fell to 12.7 percent against 13.1 percent during the year-ago period.

Of the 145 companies, 18 companies that reported revenue of over Rs 1,000 crore, managed costs better than the remaining 127 companies that had revenue of less than Rs 1,000 crore.

During the June 2011 quarter, net sales growth for larger companies was 29 percent while that for smaller companies was 22 percent.

The net profit growth for larger companies was 25 percent while that for smaller companies was only 14.4 precent.

This shows that smaller companies have to work much harder to maintain the revenue growth.

Sector specific trend

IT services companies grew net sales by over 20 percent and reported an over 20% growth in the net profit on an annual basis. The going was tougher for companies in other sectors. Auto-ancilliary companies reported a 10 percent growth in revenue but the operating profit growth was barely 1 percent. Similarly, in the pharma sector, companies have faced intense pressure on pricing of drugs. While net sales grew by over 10 percent, operating profit grew by less than 6 percent over the year ago period.

High interest rates

Interest costs rose 18 percent against 14 percent a year ago. The central bank has increased rates 10 times and by 2.5 percent over the past 15 months. This has actually affected smaller companies more.

The aggregate data suggests that companies with net sales of less than Rs 1,000 crore per quarter have reported a growth of 25 percent in interest cost against just 13 percent growth in interest cost for companies above Rs 1,000 crore net sales. This means, rising interest rates have hurt smaller companies harder than larger ones.

Wage bill rising

Companies have reported a 26 percent growth in employee costs against 13.9percent last year. This goes to show that hiring and retaining staff is tougher for businesses. This has hurt large and small companies alike. Many companies have said that it is tough to retain mid-level executives or hire people with the right talent. Rising costs clearly indicate that companies are paying more than they did last year to ensure adequate supply of talent.

IT services companies have effected wage hikes for their staff in India and overseas. This year wage hikes had to toe the inflationary trend in India.