MUMBAI, November 17: If the performance of companies in the first six-month period ended September 1997 is any indication, the corporate sector is likely to perform better in the current year.

According to a study conducted by the Centre for Monitoring Indian Economy (CMIE), while sales growth declined further during the first half of 1997-98, there are signs of recovery in profits. The study covered the first half results of 53 manufacturing companies during October 1997.

The study said sales of 53 companies rose by around 13 per cent as compared with 16 per cent growth recorded during the first half 1996-97. During 1996-97, the corporate sector had registered a 16 per cent growth in sales. The growth in PBDIT (profit before depreciation, interest and taxation) seems to to have recovered during the first half of 1997-98 as the same companies registered a 15 per cent increase compared with 11 per cent increase during the first half of 1996-97.

The net profit of the companies rose by 11 per cent during the first half of 1996-97. In 1996-97 also, the corporate sector had experienced a 15 per cent fall in net profit.

Major companies which announced their results include the two largest private sector companies, Reliance Industries and TELCO. With the commissioning of new capacities at its Hazira complex, Reliance Industries recorded a healthy 50 per cent growth in sales during the first half ended September 1997. On the other hand, total expenses also rose by 56 per cent. A sharp growth in interest payments and depreciation contracted the growth in net profit of the company to 29 per cent at Rs 840 crore.

The CMIE study said the corporate sector faced an all-round slowdown in 1996-97 compared with robust growth rate recorded in the preceding two years. Sales increased by 16 per cent as against 26 per cent in 1994-95 and 22 per cent in 1995-96. ``The value of output growth declined from 26 per cent to 22 per cent to 15 per cent. Although the growth in costs also slowed down, these grew faster than the value of output. As a result, growth in profits declined quite sharply,'' it said.

The growth in PBDIT declined from 32 per cent in 1994-95 to 24 per cent in 1995-96 to less than nine per cent in 1996-97. This is the lowest growth in PBDIT in the past eight years. Besides, operating profit stagnated at the previous year's level as depreciation costs shot up during 1996-97. Among operating costs, while growth in wages and salaries and raw material costs declined perceptibly, energy costs and advertising spending increased quite substantially during the year.

``Interest costs increased by 43 per cent. This reflects the higher borrowing of the corporate manufacturing sector during the year and the increase in the cost of borrowing of relatively smaller firms,'' it said.One intriguing factor of the performance of the corporates during the 1990s has been their continuously declining utilisation of assets. ``This decline is witnessed across ownership groups as well as industries. 1996-97 was no exception to this trend. Asset utilisation (defined as value of production as ratio of gross fixed assets) dropped from two per cent in 1995-96 to 1.8 per cent in 1996-97,'' CMIE said.

Internal sources of funds played a larger role in the total funds available with the corporate sector during 1996-97. Its share shot up to 31 per cent compared to about 21 per cent in 1995-96. Depreciation as a source of fund, contributed significantly to this. ``Funds available from the capital markets declined. Their share dropped from 41 per cent in 1993-94 to 16 per cent in 1996-97. Again, most of the resources available from the capital market were in the form of debentures and bonds," the CMIE study said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.