The Reserve Bank of India (RBI) in its report reviewing the performance of private corporate business sector has shown that the costs of the India Inc has increased faster, largely due to increased input and interest costs resulting in deceleration in profits to 4.2%, during the first half of 2008-09 as against the corresponding period of the previous year. The study was done on the abridged un-audited and audited financial results of 2072 non-government non-financial public limited companies.
This is evident in the net profits to sales ratio, a measure of overall profitability, which weakened by more than 2 percentage points from 11.6% in April-September 2007 to 9.2% in April-September 2008, the report said. The selected companies in aggregate showed no evidence of slowing business activity during April-September 2008 and sales grew 32.4% reflecting sustained demand and also high selling prices.
Sector-wise companies engaged in computer and related activities fared better in comparison to companies in manufacturing and other services. The industry-wise analysis indicated that fertilisers, mining and quarrying, construction, iron and steel, IT and refineries fared well. Over the quarters, while the overall sales in second quarter rose faster than in first, net profits in second quarter of 2008-09 contracted.
The coverage of the selected companies in terms of paid-up capital (PUC) and sales in relation to the companies listed on the Bombay Stock Exchange as on September 30, 2008 was around 66% and 86%, respectively. The non-government non-financial companies, broadly representing the private corporate sector, showed robust business activity in the first half of 2008-09.
The combination of high selling prices and continued consumer demand though decelerating resulted in high growth in sales. However, costs increased faster, principally due to increased input cost and interest expenses resulting in deceleration in profits. While sales growth at 32.4% was higher by almost 15 percentage points when compared with the year ago level, net profits declined by 25 percentage points. Other income, which is not core to the companies, contracted by 9%. More importantly, interest outgo in the first half of the current year increased by 72.2% as against 11.7% rise observed in the first half of 2007-08.