Signs of stability

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SummaryDespite the growth in net sales slowing, corporate India has been able to post good growth in net profit year-on-year in the three months to September 2012 because companies have managed to protect their margins by keeping costs in check.

Despite the growth in net sales slowing, corporate India has been able to post good growth in net profit year-on-year in the three months to September 2012 because companies have managed to protect their margins by keeping costs in check. But more worrying is the fact that growth of net sales of smaller companies has slowed as compared with bigger companies.

An analysis of 2,926 companies that have reported their results for the quarter ended September this year shows that the share of raw material to sales rose by 48.52 basis points in the three months to September 2012 as compared with 50 basis points in the quarter ended June this year. The other incomes of companies also went up by a good 28% during the quarter as compared with 18% in the June quarter this year. Total expenditure of companies grew a shade less than 10% year-on-year in September as compared with 16% in the June quarter. And with interest expenses moderating, operating profits of companies grew by 12% during the quarter ended September this year.

However, new project announced by companies in the second quarter of this financial year declined 75% quarter-on-quarter and the fall is equally sharp for both private and public sector companies. Data from CMIE shows that private new project announcements, which saw sequential improvement in the third and fourth quarter of last financial year, declined sharply in the second quarter of this financial year.

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