A clear slowdown in economic activity, and its subsequent effect on earnings growth, has not spared any-not even the big-ticket business houses in the country. Although prominent business groups that would just come out with profits till the second quarter of FY08, have seen their math for third quarter earnings going wrong.
According to a study carried out by FE, the net profits of 25 largest business houses have decreased 34.5% to Rs 28,536 crore in the October-December quarter, from Rs 43,593 crore in the same period last fiscal.
Only a few of the smaller corporate houses could report positive numbers. The study shows of the 25, only six business houses could report more than 5% increase in net profit. These include the Murugappa Group, the Munjal (Hero Honda) group and the Torrent group.
Even on the revenue front, the performance has been dismal. Total sales of the 25 business houses increased 16.0 % to Rs 3.55 lakh crore in the third quarter of the current financial year, against Rs 3.06 lakh crore in the corresponding period of last fiscal. Earlier, even when profits were down, revenue remained in the 25%-plus zone, and now with the revenue growth falling brings in ominous portends, says a fund manager.
A large part of the fall in earnings comes from the fact that the other or non-core income of many of the business houses has dried up. Business houses would deploy surplus cash in various markets to gain from the positive sentiment. The negative sentiments in the markets and liquidity crunch have seen several company managements reduce their investments and divert them into operations. In fact, the other income of these 25 business houses decreased 7.6% to Rs 18,681 crore in the October-December quarter of the current fiscal, from Rs 20,226 crore in the same period of last fiscal.
Even the profitability of the business houses took a hit as the ratio of net earnings (PAT) to sales decreased from 14.26% in Oct-Dec 2007 to 8.04% in Oct-Dec 2008.Among the 25 business houses, the ratios decreased significantly from Oct-Dec 2007 to Oct-Dec 2008 in the case of Mukesh Ambani (23.36% to11.10%), Tatas (14.06% to 6.45 %) and Sterlite (22.18% to 13.41%).
