MNCs beat Indian firms in profit growth

Written by Pradip Kumar Dey | Mumbai, Aug 21 | Updated: Aug 22 2008, 06:16am hrs
Multinational companies (MNCs) fared better than their Indian counterparts in terms of profit growth during the first quarter of the current fiscal. This was revealed by a comparison of profit growth figures of 100 MNCs operating in the country and an equal number of major domestic companies. Aggregate profit margin (profit before tax to sales) for MNCs showed a marginal decrease during April-June 2008 from the year-ago period. In the case of Indian companies, the aggregate profit margin declined significantly.

Data analysed by FE showed the aggregate sales of 100 MNCs increased 21.5%, from Rs 29,770 crore during April-June 07 to Rs 36,185 crore in the comparable period of the ongoing fiscal. Total profit before sales (PBT) rose 20%, bringing down the profitability ratio (measured as a percentage of PBT to sales) from 18.20% to 17.97% year-on-year. This shows that despite higher sales and higher profit growth, MNCs have not been able to raise their return on sales. Among MNCs, Sesa Goa registered a significant improvement in profitability ratio. Its PBT increased 382.6% year-on-year to touch Rs 851.07 crore. PBT to sales ratio for the same period rose from 38.83% to 66.85%, while sales rose by 180.3%.

Around 44% of the MNCs studied showed a rise in profitability ratio year-on-year, while 34% of the domestic companies registered a similar increase. On the whole, the average profitability ratio of MNCs was higher than that of the domestic companies during April-June 08. The following figures point to that end: Indian companies that formed part of the study achieved a significant 45.7% growth in sales to touch Rs 4,65,101 crore during April-June08. Their PBT for the first quarter increased marginally by 4.6% year-on-year to touch Rs 50,974 crore. This brought the profitability ratio down from 15.27% to 10.96%.

Among the 100 domestic companies that constituted the study, significant increase in profitability was seen in the case of Jet Airways.