Getting leaner for fatter profits

Written by Pradip Kumar Dey | Updated: Mar 4 2011, 08:51am hrs
Corporate profits witnessed a significant increase in FY2009-10. Indias GDP grew by 7.4% as compared to 6.7% in the previous year. The higher growth of manufacturing sector and construction sector was responsible for this upturn. The overall manufacturing sector recorded a growth of 10.9% during 2009-10 (April 2009-March 2010) as compared to 7.7% ( April-November 2009) in the previous year. Overall economic upturn together with bullish domestic equity capital markets, improved investor sentiments increased capital inflows into the economy.

Profits growth at every level-operating, gross, before tax and after was positive for the FE 500. Margins were strong and increased in 2009-10. The operating profits of the 500 companies increased significantly by 27.2% (on an annualised basis) to Rs 5.71 lakh crore in 2009-10 from the level of Rs 4.49 lakh crore in 2008-09.

The gross profits of the 500 companies increased by 32.36% in 2009-10 when sales cantered at the relatively low speedy pace of 5.18%. In absolute terms, gross profits increased from Rs 3.74 lakh crore in 2008-09 to Rs 4.95 lakh crore in 2009-10. On the whole, the smaller companies garnered bigger profits with higher increase. The operating profit of the first 100 (according to composite ranks) companies increased by 25.17%.

The next group of 100 registered profit at the growth of 26.92 per cent during 2009-10. The third group saw an increase of 38.94%, third highest increase among the groups. The fourth 100 registered an increase of 53.68%. And the last group of 100 saw a second highest increase of 40.83%. On the other hand the gross profits of the first 100 companies increased at 29.57%. The next group of 100 saw profits increase at the higher pace of 32.34%. The third group of 100 saw a significant increase of 51.54% in gross profit. And the fourth group showed a highest increase of 80.71% in its gross profit. The last group saw a second largest increase of 56.26% in gross profit during 2009-10.

The Top 10 (according to composite ranks) recorded a growth rate of 29.02% in operating profit and an increase of 33.02% in gross profit -higher than the FE 500 as a whole. In terms of gross profit, the share of the Top 10 in the aggregate increased from 37.73% in 2008-09 to 37.92% in 2009-10.

The Top 10 in terms of gross profits were ONGC, Reliance Inds, Indian Oil Corporation, Bharti Airtel,Coal India, NTPC, SAIL, Reliance Communications, Hindustan Zinc and Tata Consultancy Services. Within the group, five companies namely NTPC, Coal India, Bharti Airtel, Reliance Communications and SAIL have interchanged their positions. Three others had unchanged ranks from 2008-09. Another two namely Indian Oil Corporation and Hindustan Zinc had entered first time in the top 10 group.

The highest rate of rise in gross profits was reported by Hindustan Copper (884.13%), Sutlej Textiles (741.31%), Ruchi Infrastructure (709.46%), KEI Industries (697.25%), J K Tyre & Industries (666.31%), Orchid Chem & Pharma (534.24%), Pricol (515.19%), Apar Industries (463.10%), IL & FS Transportation Networks (450.43%), Gati (427.59%), Essar Oil (362.72%), Eveready Industries (325.51%), Bombay Burmah Trading (240.52%) and Savita Oil Technologies (214.64%).

Most of these fantastic numbers, however, represent statistical achievements rather than real growth because of the very low base of profits in the 2008-09. The aggregate profits before tax (PBT) of the FE 500 increased higher than operating profit. PBT increased by 35.51% from Rs 2.69 lakh crore (on an annualised basis) in 2008-09 to Rs 3.64 lakh crore in 2009-10.There were also less loss makers during the year. The number of companies reporting red at the PBT Level was 26 in 2009-10 against 74 in 2008-09.

Significant rates of rise in PBT were registered by Spice Mobility (8275%), Suashish Diamonds (7302%), Hindustan Copper (4278.09% per cent), CESC (885.29%), HT Media (792.48%), Eveready Industries (I) (751%), IL & FS Transportation Networks (636.56%), Century Enka (583.42%), JSW Steel Industries (219.25 per cent), Gujarat Sidhee Cement ( 194.14%) and Coromandel International ( 143.61%).

The FE 500 performed significantly better in the bottomline number of profit after tax (PAT), with Reliance Industries tries leading the way. But in operating profit, gross profit and PBT, ONGC was way ahead of the others. Reliance Industries earned Rs 24,503 crore in post-tax profits in 2009-10.

The Top 10 (according to composite ranks) PAT increased by 36.12% from Rs 70,863 crore (on an annualised basis) in 2008-09 to Rs 96,456 crore in 2009-10. The FE 500 as a group increased PAT by 33.23%, from Rs 1.94 lakh crore to Rs 2.58 lakh crore during the same period. In the ultimate analysis, though, what matters is not the size of profits (a big company should earn more profits anyway), but profitability.

This can be measured in many ways, with return on sales (PAT as percentage of net sales) , return on assets (gross profits as percentage of assets) and operating profit margin (operating profit as percentage of net sales ) being the main ratios. In 2009-10, profitability was high for few, with as many as 27 companies reporting over 30 per cent return on assets.

Mention may be made of Colgate-Palmolive (59.85%), Castrol (51.77%) and Nestle (I) (50.52%). In terms of return on sales (PAT to net sales), eighteen companies against sixteen last year had ratios above 30%. Notable among them were: Cairn (I) (64.76%), NMDC (55.25%) and SJVN (54.96%).

In terms of OPM, 81 companies reporting over 30 per cent during 2009-10. Mention may be made of Power Grid Corporation (91.17%), NHPC (90.24%) and NMDC (84.78%). These can well be called the most profitable companies of 2009-10.