MNCs perform better than Indian peers

Written by Pradip Kumar Dey | Updated: Mar 4 2011, 08:57am hrs
Multinational companies in India have performed better in terms of aggregate profitibility ratio than Indian companies in 2009-10. A comparison between 47 major MNCs and 50 major domestic companies, all with sales over Rs 300 crore, shows that while Indian companies profitability ratio (profit before tax to sales) increased during 2009-10, the magnitude of MNCs in profitability ratio was higher.

In the case of MNCs, all the selected ratios at the aggregate level showed an increase except capital turnover ratio during 2009-10, against that of 2008-09, but in the case of Indian companies, all the ratios showed a decline except profitability ratio during the same period.

The aggregate sales of the 47 MNCs have increased by 11.9% from Rs 1.33 lakh crore in 2008-09 to Rs 1.49 lakh crore in 2009-10. Their total profit before tax (PBT) has increased by 20.36% during the above period, increasing the profitability ratio measured as a percentage of the PBT to sales ratio from 17.69% in 2008-09 to 19.03% in 2009-10. This is significant, for with lower sales growth, the MNCs have succeeded in raising their return on sales. We considered four ratios for the comparison. They are profitability = (profit before tax/ sales) x 100; capital turnover = sales/total funds; working capital turnover = sales/net current assets; stock turnover = sales/inventories.

On the other hand, corporate India achieved an 2.71% growth in sales during 2009-10, and the PBT has increased by 38.93% to Rs 2.15 lakh crore during 2009-10 from Rs 1.55 lakh crore during 2008-09. So the profitability ratio increased from 8.50% in 2008-09 to 11.49% in 2009-10. Significant increase in profitability ratio was seen in the case of Apollo Tyres. The profitability ratio of Apollo Tyres increased from 4.19% in 2008-09 to 11.26% in 2009-10. In Reliance Industries, the profitability ratio increased significantly from 11.78% in 2008-09 to 14.14% in 2009-10.

Among the MNCs, Castrol (I) showed a significant improvement in the profitability ratio. The PBT to sales ratio rose from 18.36% in 2008-09 to 24.96% in 2009-10. But in the case of Maruti Suzuki (I), the profitability ratio increased from 8.22% to 12.56% during 2009-10. In the working capital turnover ratio (2.61 in 2008-09 to 3.29 in 2009-10) and stock turnover ratio (2.61 to 3.29), MNCs showed an increase during 2009-10. And the capital turnover ratio decreased marginally from 1.48 in 2008-09 to 1.46 in 2009-10 for MNCs.

Indian companies showed a decrease in capital turnover ratio (2.44 to 2.15), working capital turnover ratio (6.95 to 6.37) and stock turnover ratio (9.63 to 8.01) during the study period. Out of 47 MNCs, four companies namely Maruti Suzuki, ITC, Castrol (I) and GlaxoSmithkline Cons. Health. showed an increase in all the four ratios during 2009-10. In the case of Indian companies, only three namely Bharat Heavy Electricals, Grasim Industries and Apollo Tyres showed an increase in all the ratios during 2009-10 from the level of 2008-09.