Downtrend in profitability

Written by Pradip Kumar Dey | Updated: Aug 29 2011, 07:44am hrs
A combination of hardening interest rates and high crude oil prices have started impacting the bottomlines of public sector undertakings (PSUs). The public sector reported a decent growth in its operating profit during the April-June 2011 quarter but the sectors net profit was pulled down by factors like an increased interest burden and uncovered under-recoveries of oil marketing companies.

An FE study shows that the operating profits of 46 central and state public sector undertakings increased 12.3% during the quarter under review while their net profits declined 14%. The study excluded PSU banks and NBFCs.

The operating profit of 46 PSUs fell 39.7% to R22,186 crore during April-June10, from R36,813 crore in the earlier year. Though the figure went up 12.3% in April-June11 to R24,915 crore, it was still far smaller than the April-June09 figure.

The net profit of these PSUs fell by 68.6% to R5,842 crore during April-June10 and further by 13.9% to R5,030 crore during April-June11. The under-recoveries of oil marketing companies was a major reason for such cumulative decline in net profits.

The fall in net profits came in the backdrop of a 36% jump in net sales during the April-June11 quarter to R3.18 lakh crore. Net sales were up 16.7% during April-June10 at R2.34 lakh crore.

The FE analysis shows that the profitability of PSUs has been coming down over the last three financial years. The operating profit-to-net sales ratio for the April-June quarter decreased from 18.37% during 09 to 9.49% during 10 and to 7.83% during 11.

The net profit-to-sales ratio also steadily decreased from 9.28% during April-June09 to 1.58% during April-June11. ONGC, SAIL, Engineers India, Indraprastha Gas and National Fertilisers led the declining trend. A steady increase in the ratio was seen with BHEL, Nalco, Hind Copper, BEML and Bharat Electronics.

The June11 quarter saw a steep increase in the interest outgo of PSUs. The growth of interest outgo was as high as 45.7% this year from a marginal increase of 1.1% in the June10 quarter.

Among the PSUs, the significant increase in the growth of operating profit was seen with Petronet LNG, where it increased 78.4% in the last quarter. Its net sales were up 83% during April-June 11.

In April-June11, ONGC had the highest operating profit of R10,197 crore, followed by NTPC (R3,863 crore), NMDC (R2,696 crore), Power Grid Corp. (R1,987 crore) and SAIL (R1,774 crore). ONGCs subsidy burden during the June11 quarter more than doubled to R12,046 crore from R5,515 crore a year earlier.

Industrywise, a significant increase in operating profit was seen with fertilisers, gas distribution, oil exploration and chemicals. The operating profit of fertiliser companies increased by 31.4% in the June11 quarter. A downward trend in operating profit was seen with steel and trading, refineries and telecom, which showed negative operating profits in the last two June quarters.