Pvt sector firms posted better returns on investment in ’2000-01

Pradip Kumar Dey, FE Research Bureau

There has been an increase in the return on investment in the private corporate sector during 2000-01. Return on investment is the ratio which examines the relationship between the size of earnings (gross profits) and the capital employed. This relationship gives a good indication of the profitability of the capital employed in the company/industry.

A comparative study has been made for 165 major companies (sales above Rs 100 crore) from 1999-00 to 2000-01. These companies aggregated a gross profit of Rs 26,177 crore in 2000-01, as against Rs 21,850 crore in 1999-00. Total capital employed by these companies increased by 8 per cent to Rs 1,93,237 crore (Rs 1,78,905 crore) during 2000-01.

The study of these 165 major companies reveals that the ratio of gross profits to capital employed (which is used to measure the return on investment) increased from 12.21 per cent in 1999-00 to 13.55 per cent in 2000-01, indicating higher return on investment during 2000-01.

A significant upward trend can be seen in the case of Satyam Computer (28.72 per cent in 1999-00 to 52.53 per cent in 2000-01), Digital Equipment (18.96 per cent to 32.93 per cent), Rolta India (18.82 per cent to 25.73 per cent), Alfa Laval (12.28 per cent to 24.22 per cent), Madura Coats (5 per cent to 18.87 per cent), Birla 3M (6.66 per cent to 16.52 per cent), Balarampur Chini (6.53 per cent to 11.74 per cent), Atul (3.41 per cent to 6.04 per cent), Ballarpur Indus (2.35 per cent to 5.59 per cent) and Henkel Spic (0.14 per cent to 2.25 per cent). The return on investment of Satyam Computer showed a significant increase during 2000-01 from the level of 1999-00. This has happened due to the significant increase in the capital employed figure during 2000-01. The capital employed of the company increased by 59.1 per cent to Rs 1,146.53 crore during 2000-01 from the level of Rs 720.71 crore during 1999-00. Gross profit of the company increased by 190.9 per cent to Rs 602.32 crore during 2000-01 from the level of Rs 207.00 crore.
Therefore, return on investment increased significantly during 2000-01. The strong pillar of growth of the company has been the rapidly growing size of its e-business projects. A downward trend in the return on investment was witnessed in the case of Burroughs Wellcome (28.58 per cent in 1999-00 to 18.55 per cent in 2000-01), Aptech (27.29 per cent to 18.48 per cent), Electrosteel Castings (29.88 per cent to 15.85 per cent), TVS Srichakra (23.29 per cent to 14.96 per cent), Reckitt Benckiser (21.06 per cent to 14.34 per cent), Gillette India (22.84 per cent to 9.53 per cent) and Goodricke Group (18.26 per cent to 4.39 per cent). Gross profit of Goodricke Group was at Rs 6.63 crore for the year ended December 31, 2000 and was down by 73.9 per cent on an annualised basis over the previous year. According to the directors report, steady weakening of prices and lower demand are responsible for declining the profit of the company. With import liberalisation and a bilateral agreement with Sri Lanka, tea import into India from Sri Lanka, as well as Indonesia, Vietnam and China at cheaper prices, has been a major factor in reducing demand for Indian tea.

It is interesting to observe the shifts in rank according to return on investment among the 165 companies between 1999-00 and 2000-01. In 1999-00, the top five companies in order were Mahindra British Tele, Infosys Techno, Hero Honda, Castrol and Rhone-Poulenc, while in 2000-01, the top five are Satyam Computer, Infosys Techno, Mahindra British Tele, Knoll Pharma and Hero Honda.

Three companies, namely Infosys Techno, Mahindra British Tele and Hero Honda are common in both the years’ list of top five companies. One significant feature is that Satyam Computer (16th in 1999-00 to 1st in 2000-01) has improved its rank significantly in 2000-01, because of a comparatively good performance. In the sector-wise analysis, the return on investment increases from 1999-00 to 2000-01 in the case of 16 industries out of 22.

Prominent among them are food products (25.09 per cent in 1999-00 to 26.41 per cent in 2000-01), tobacco (26.76 per cent to 28.55 per cent), cotton textiles (7.83 per cent to 9.69 per cent), computers (23.54 per cent to 28.69 per cent), fertilisers (11.48 per cent to 13.55 per cent), sugar and breweries (7.40 per cent to 9.77 per cent),paper & products (1.49 per cent to 6.06 per cent), aluminium (15.92 per cent to 16.48 per cent) and iron & steel (7.88 per cent to 9.08 per cent). A decline in the return on investment can be seen in the case of phamaceuticals (19.00 per cent in 1999-00 to 18.82 per cent in 2000-01), tyres & tubes(8.18 per cent to 6.77 per cent), auto & ancillaries (16.23 per cent to 12.52 per cent), electricity (13.06 per cent to 11.46 per cent) and paints (19.60 per cent to 19.15 per cent). The highest and lowest return on investment were witnessed in 2000-01 in the case of tobacco (28.55 per cent) and paper & products (6.06 per cent) respectively.