A comparative study has been made for 100 major companies (sales above Rs 400 crore) from 1997-98 to 1998-99. These companies aggregated a gross profit of Rs 18,862.20 crore in 1998-99 as against Rs 1,76,53.47 crore in 1997-98. Total capital employed of the companies increased by 10.96 per cent to Rs 1,84,531.37 crore (Rs 1,66,301.08 crore) during 1998-99.

The study on these 100 major companies reveals that the ratio of gross profits to total assets(which is used to measure the return on investment) declined from 10.62 per cent in 1997-98 to 10.22 per cent in 1998-99, indicating lower return on investment during 1998-99.

A significant downward trendcan be seen in the case of Infosys Technologies (44.60 per cent in 1998-99 to 29.08 per cent in 1997-98), Suashish Diamonds (14.86 per cent to 9.94 per cent), EIH (13.67 per cent to 9.33 per cent), Tata Chemicals (12.99 per cent to 9.30 per cent), Hoechst Marion (14.14 per cent to 7.79 per cent), Bajaj Tempo (14.14 per cent to 3.68 per cent), Finolex Industries (6.26 per cent to 3.17 per cent), Greaves (7.18 per cent to 2.73 per cent) and Hindustan Motors (7.34 per cent to 0.30 per cent).

The return on investment of Infosys Technologies showed a significant decline during 1998-99 from the level of 1997-98. This has happened due to the significant increase in the capital employed figures during 1998-99. The capital employed of the company increased by 231.92 per cent to Rs 659.39 crore during 1998-99 from the level of Rs 198.66 crore during 1997-98. This was probably due to the company's ADS (American Depository Shares) issue during the year. Due to this ADS issue, the company had liquid assets of Rs 416.66crore. These funds have been invested both in rupee and dollar deposits with banks and financial institutions. So the return on investment declined significantly during 1998-99. But the gross profit of the company increased by 116.4 per cent to Rs 191.75 crore during 1998-99 from the level of Rs 88.61 crore during 1997-98.

In the case of Hindustan Motors, the return on investment declined significantly during the current year. It is known that there was a severe demand recession in the automobile sector especially in the second half of the year, which inevitably had an adverse impact on the operations of the company's automobile division. As a result, production of vehicles at Hind Motor during the year was lower at 20,010 numbers against 26,684 in the previous year. The gross profit of the company declined by 94.7 per cent to Rs 3.88 crore during 1998-99 from the level of Rs 73.27 crore during 1997-98. This was responsible for declining the return on investment of the company during 1998-99 from the levelof 1997-98.

A significant increase in the return on investment was witnessed in NIIT (22.25 per cent in 1997-98 to 32.49 per cent in 1998-99), Electrosteel Castings (17.63 per cent to 26.53 per cent), Novartis (17.75 per cent to 26.43 per cent), Bata (6.19 per cent to 11.24 per cent) and Voltas (1.77 per cent to 5.10 per cent).

Gross profit of NIIT at Rs 142.72 crore for the year ended September 30, 1998 are up by 61.17 per cent on an annualised basis over the previous period. Operations in 1998-99 resulted in NIIT recording increased foreign exchange earnings from its activities of Software Services & Systems Integration, Educational Multimedia and IT Training. The forex earnings of the company went up from Rs 77 crore in 1997-98 to Rs 129 crore in 1998-99, reflecting a growth of 67 per cent. This has helped the company to increase the return on investment during the year.

It is interesting to observe the shifts in rank according to return on investment among the 100 companies between 1997-98 and1998-99. In 1997-98, the top five companies in order are Infosys Technologies, Punjab Tractor, SmithKline Beecham Con, Castrol and Motor Industries while in 1998-99 the top five are Punjab Tractor, SmithKline Beecham Con, Castrol, NIIT and Motor Industries. Four companies namely Punjab Tractor, SmithKline Con, Castrol and Motor Industries are common in both the years' list of top five companies. One significant feature is that NIIT (14th in 1997-98 to 4th in 1998-99) has improved its rank significantly in 1998-99 because of a comparatively good performance. Another feature is that Punjab Tractors improved its rank from second in 1997-98 to first in 1998-99. This was because, the fiscal 1998-99 was a highly productive year of the company. Production and sales of the company, in unit and value, of the principal product lines-tractors and harvester combines-achieved all-time highs. With the solid volume performance in tractors and combines, the company posted a record gross profit of Rs 190.5 crore, animprovement of 32.8 per cent over previous financial year. Significant decline in rank was witnessed in the case of Infosys Technologies (first in 1997-98 to sixth in 1998-99), Cipla (7th to 13th) and Cummins India (8th to 14th). The gross profit of Cummins India declined by 4.5 per cent to Rs 129.06 crore in 1998-99 from the level of Rs 135.15 crore in 1997-98. This downward trend in gross profit is responsible for declining rank position in Cummins India.

In the sector-wise analysis, the return on investment decreases from 1997-98 to 1998-99 in the case of 11 industries out of 17. Prominent among them are auto & auto ancillaries (11.79 per cent in 1997-98 to 9.62 per cent in 1998-99), tyres & tubes (6.58 per cent to 6.48 per cent), electricity (10.45 per cent to 10.25 per cent), hotels (15.29 per cent to 12.08 per cent), engineering others (8.85 per cent to 8.36 per cent), pharmaceuticals (13.80 per cent to 13.72 per cent), fertilisers (8.12 per cent to 6.95 per cent), manmade fibre(9.57 per cent to 9.22per cent), paints (16.67 per cent to 15.82 per cent) and cotton textiles (7.26 per cent to 5.02 per cent).

An increase in the return on investment can be seen in the case of aluminium (14.28 per cent in 1997-98 to 14.39 per cent in 1998-99), cement (6.91 per cent to 8.26 per cent), computer (software and hardware) (29.69 per cent to 30.44 per cent), food products (19.90 per cent to 23.99 per cent), tobacco (20.40 per cent to 22.04 per cent) and other chemicals (16.40 per cent to 16.63 per cent).

In 1998-99, the top five industries in order are computer (software and hardware) (30.44 per cent), food products (23.99 per cent), tobacco (22.04 per cent), other chemicals (16.63 per cent) and paints (15.82 per cent). While in 1997-98 the top five were computer (29.69 per cent), tobacco (20.40 per cent), food products (19.90 per cent), paints (16.67 per cent) and other chemicals (16.40 per cent). Though the computer industry topped the list of return on investment in both the years but the ratio increasedmarginally by 0.75 percentage points during 1998-99 from the level of 1997-98. This was probably due to the higher growth of gross profit compared to the growth of capital employed during 1998-99. In the group of two computer companies, the gross profit increased by 88.8 per cent to RS 334.47 crore in 1998-99 from Rs 177.16 crore in 1997-98. But the capital employed of these companies increased by 84.1 per cent to Rs 1,098.64 crore in 1998-99 from Rs 596.72 crore in 1997-98. This indicated that the growth of capital employed of the computer industry was lower than the growth of gross profit during 1998-99 from the level of 1997-98. The highest return on investment were witnessed in 1998-99 and 1997-98 in the case of computers (30.44 per cent and 29.69 per cent). Similarly, the lowest return on investment was witnessed in 1998-99 and 1997-98 were in the case of cotton textiles (5.02 per cent) and tyres and tubes (6.58 per cent) respectively.

FE Research Bureau