Business houses feel inflation heat

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As India Inc witnesses a slowdown in the earnings growth rate, India’s top 25 business houses also mirror the trend. An FE study of these large industrial houses, with diversified business presence, shows that the net earnings growth rate is low at 7.3% in the first quarter of FY09, as compared to double digit growth rates recorded in previous quarters. However, the revenues kept growing at a rapid clip, where the companies in reckoning recorded a 35.5% growth in the period under consideration.

In absolute terms, the total net profit of the 25 largest business houses has increased to Rs 15,878 crore in April-June’08 from Rs 14,799 crore in April-June’07. Clearly, there has been volume growth, but rising input costs and higher interest rates have been taking their toll.

On the other hand , the total sales of the 25 houses also increased by 35.5% to Rs 1,55,160 crore in April-June’08 , against Rs 1,14,541 crore in April-June’07. Analysts attribute the lower growth in earnings to lower trading income and income from non-core sources like the stock market and the foreign exchange market. Since the rupee and the stock markets have been volatile, especially in the first quarter of FY09, the total other income of the above number of houses decreased by 1.6% to Rs 3,515 crore in April-June’08 from the level of Rs 3,571 crore in April-June’07.

Subsequently, the net profit margin, which is expressed as the PAT to sales ratio, which measures the rupee net profit made from a hundred rupee sales, has dipped from 12.92% in April-June’07 to 10.23% in April-June’08.

Individually, among the top 25, the ratios increased significantly from April-June’07 to April-June’08 in the case of Tata (14.82% to 15.41%), Munjal (Hero) ( 7.14% to 8.98 ), Murugappa (2.47% to 5.56 %) and Torrent (6.34% to 7.50%).

Among the 25 business houses, the ratios decreased significantly from April-June’07 to April-June’08 in the case of Mukesh Ambani (12.30% to 9.89%), OP Jindal (14.34% to 8.85%) and Anil Ambani (25.66% to 14.87%).

On the net profit level, significant growth of over 25% in the first quarter of the current fiscal, over the same period of the previous year was witnessed amongst eight industrial houses. These include the Tata gruop, the Ruchi Soya group, the Essar, the Munjal or the Hero group, Ispat-MPK, Murugappa, Torrent and Kalyani.