Buoyant corporate margins sustain economic boom

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: The growth in profits for corporates has been moderate during 2005-06. The Indian economy remained buoyant, with the GDP growing at 7.5-8%. Robust capital inflows, higher foreign exchange reserves and the revival of capital investments have instilled a new found confidence in the Indian corporate sector.

Profits growth at every level-operating, gross, before tax and after was lower than the sales growth for the FE 500. Margins, though healthy, declined in 2005-06.

The operating profits of the 500 companies increased by 10.73 per cent (on an annualised basis) to Rs 2,19,629 crore in 2005-06 from Rs 1,98,355 crore in 2004-05. The gross profits of the 500 companies sprinted by 11.35% in 2005-06 when sales cantered at the relatively more sedate pace of 19.54%. In absolute terms, gross profits increased from Rs 1,81,119 crore in 2004-05 to Rs 2,01,671 crore in 2005-06.

On the whole, the bigger companies garnered bigger profits in volume terms with a lower growth rate. The operating profit of the first 100 (according to composite ranks) companies increased by 7.52%. The next three groups of 100 registered profits at the growth rates of 32.56%, 14.52%and 24.03% respectively.

The last group of 100 saw a significantly higher growth of 27.36 percent .On the other hand the gross profits of the first 100 Companies grew at 7.95%. The next segment of 100 saw profits rise at the higher pace of 37.72%. The third group of 100 saw a lower growth rate of 15.87% in gross profit. But the fourth group showed an increase of 25.29% in its gross profit. The last group saw a growth of 34.85% in gross profit during 2005-06.

The Top 10 (according to composite ranks) recorded a growth rate of 5.69% in operating profit and 6.51% in gross profit -slower than the FE-500 as a whole. In terms of gross profit, the share of the Top 10 in the aggregate declined from 44.98% in 2004-05 to 43.03% cent in 2005-06.

The Top 10 in terms of gross profits were ONGC, Reliance Industries, Indian Oil, National Thermal Power Corp, SAIL, Tata Steel, Gail (I), Bharti Airtel, ITC and TCS.

Within the group, four companies, namely, Indian Oil Corp, SAIL, Bharti Airtel and ITC have interchanged their positions. Five others had unchanged ranks from 2004-05. One new company, TCS, has entered the top 10 league for the first time.