Financial results for the quarter ending June show that mid-cap companies have performed better than large caps. It is reflecting by the stock prices of the companies in these two segments. In August, while the Sensex gained 3.85%in average, the BSE mid-cap and the BSE small-cap indices went up by 6% and 11.47%, respectively. Since March this year, when the markets started moving up, the BSE mid-cap index has risen by 123% compared with 93% of the Sensex.

Experts attribute it to better optimisation of resources. The three government stimulus packages also helped mid-cap companies, especially in infrastructure and construction space, which led to new order bookings and pipeline of projects. Moreover, relief from declining raw material costs and lower interest rates helped mid-cap companies to post a buoyant top line in the quarter ending June.

An analysis of 867 listed companies by FE, which comprises 197 large-cap, 214 mid-cap and 456 small-cap companies, shows that net profit of mid-cap companies increased by 12.8% to Rs 12,684 crore during April-June 2009 from Rs 11,244 crore during April-June quarter last year. The net sales of the sample also increased by 4.8% to Rs 1.38 lakh crore during April-June 2009. Other income too increased by 39.7% to Rs 7,950 crore during the same period.

In contrast, net profit of large-cap companies increased by 19% during the same period, but their sales declined by 9.2% owing to slack in the demand of their products. The net profit increase was aided by 56% increase in other income, which came from stake sales and other assets.

For large-cap companies, net sales growth of the sample decreased by 9.2% to Rs 4.99 lakh crore during April-June 2009 from the level of Rs 5.50 lakh crore during the same period last year. Interest costs of mid-cap companies too increased by 18.9% to Rs 68,486 crore during April-June 2009.

In the case of small cap group, the total net profit figure of 456 companies increased by 5.9% to Rs 6,301 crore from Rs 5,950 crore. The sales figure of this group also increased marginally by 1.5% during the study period. The other income of this group increased by 28.6% to Rs 1,822 crore during

April-June 2009 from Rs 1,416 crore during April-June 2008. The interest burden of this group increased by 15.3% to Rs 4,308 crore during April-June 2009. The net profit to sales ratio of the small cap companies increased from 6.89% during April-June 2008 to 7.18% during April-June 2009.

Says D R Dogra, managing director & chief executive officer, CARE, ?Mid-caps are very sensitive to domestic recovery. The Index of Industrial Production (IIP) data for the past two months has shown some elements of recovery. Since most mid-caps are less diversified than large-caps, they have been able to use their flexibility to adapt to changing demand conditions.?

Moreover, he adds, a large proportion of mid-cap companies produce goods where the market substitutability between foreign and domestic markets is high. Also, the most immediate impact of liquidity easing has been felt by mid-cap companies as they had earlier felt the impact of stricter credit provisioning. Hence, overall mid-caps have been able to improve profitability as well as sales.

Kishor P Ostwal, CMD, CNI Research, says, ?The mid cap companies have leveraged on lower inventory cost. Due to lower inventories, the profit for Q1 was very high. Mid-cap companies suffered in earlier two quarters because of high inventory costs.?

Sales numbers of mid-cap companies also show encouraging trends. Net sales figure of mid-cap companies show an increase of over 5% to Rs 1.38 lakh crore during April-June quarter this year. The other income of this group also increased by 39.7% to Rs 7,950 crore during April-June 2009 from the level of Rs 5,692 crore during April-June 2008.

Though sales numbers were impressive, the drag was on net interest expenses, which increased 22.6% to Rs 28,567 crore during the quarter ending June this year. Analysts say banks had stopped lending to mid-cap companies as their net profits and net sales dropped very significantly in the quarter ending December last year and March this year.

Among 216 mid-cap companies, significant growth in net sales during April-June 2009 was noticed in the case of Lanco Infratech, Welspun Gujarat, KS Oil, Lupin, United Phosphorous, Balrampur Chini and Jindal Saw. Among the 214 mid cap companies, BF Utilities, India Bull Real Estate, Bajaj Holdings, Tata Inv. Corpn. and Anant Raj Industries were the top five in respect of PAT to sales ratio during April-June 2009. Interestingly, 30 mid-cap companies witnessed an increase of 100% or more in net profits during the study period.

At the same time, both large-cap and small-cap have continued to face pressure for a variety of reasons. Many of the large-cap companies went for inorganic expansion through acquisition in the recent past. Moreover, the overall global orientation of these firms and their greater depending on external funding, which has been affected due to the economic slowdown, put pressure on their balance sheets.

Similarly, small-cap companies have continued to feel the credit crunch despite easy liquidity conditions as the risk premium for lending to these entities still remains, explains an analyst from a Mumbai-based rating agency. Moreover, he adds, they the scale of production to quickly adapt to changing demand conditions.

In contrast, experts say, mid-cap companies are expected to continue to show better performance in the quarter ending September as they are reporting healthy sales growth, if the current trends are any indication.