Divergence persists

Sluggish topline yet healthy bottomline

Corporate India’s results for the first quarter of 2001-2002 (Q1) only confirm the worst fears that industrial growth remains sluggish. Aggregate sales of the 1,000 plus companies that have so far reported their quarterly results thus rose by only 5 per cent. Despite single digit topline growth, net profits, however, improved handsomely by 13 per cent. This divergence between sluggish sales and a healthy bottomline was also observed last year. As operating margins were steady at 14 per cent, these companies boosted profits either through higher product prices or slashing costs or a combination of both. The ability to cut costs in line with flat sales is crucial in riding out the cyclical downswing in industrial production. The fourth quarter (Q4) performance of 2000-2001 suggested that smaller and medium sized companies coped better with the slump than the biggies. But the Q1 numbers this year do not indicate any such clear cut pattern, as the biggest of them did not do that badly. Nevertheless, such dismal numbers failed to cheer the battered bourses which are lurching from one crisis to another. The markets remain depressed. Investor sentiment is low as one indicator after another, including that of business confidence, only point to the severity of the industrial downturn and slower GDP growth.

Among the biggies, the Q1 results of Hindustan Lever, which is India’s leading consumer products giant enthused the markets with its good financials although its topline growth was flat during Q4 of last year. In line with the overall average, Reliance Industries registered a 4 per cent growth in sales while net profits rose by 14 per cent. But there was a drop in its sales growth and net profits in Q4 of 2000-20001. Clearly, such biggies haven’t done as badly as they did during the previous quarter. But old economy stalwarts like Tata Iron and Steel Company and Tata Engineering and Locomotive Company turned in numbers that confirm the worst case scenarios for overall industrial growth. The giant registered net losses for the fifth time in row with a slump in sales of commercial vehicles — which clearly mirrors the limited dynamism in Indian industry. By contrast, the new economy companies led by the information technology firms have grown by 70 per cent according to the National Association of Software and Service Companies. Obviously such a performance wasn’t enough to offset the Q1 pattern of sluggishness.