Steep fall in operating profit

Written by Pradip Kumar Dey | Updated: Nov 21 2011, 06:59am hrs
PSUs from steel and oil sectors delivered anaemic financial results during the July-September quarter due to the tough operating conditions. While the bottomline of steel companies like SAIL was impacted by the high costs of inputs such as coking coal and sluggish growth in domestic demand, oil marketing PSUs had to face mounting under-recoveries on the retail sale of diesel, domestic LPG and PDS kerosene. A depreciating rupee also added to the PSUs financial woes.

However, Petronet LNG, which deals in imported natural gas or liquefied natural gas, did better in the quarter on the back of higher demand for the fuel due to a drop in production at Reliance Industries D6 block.

An FE study shows that eight out of 46 PSUs showed operating losses while collectively the 46 PSUs recorded a 38.7% decline in operating profits during July-Sept 11.

The study both central and states PSUs but excludes banks and NBFCs.

The operating profit of 46 PSUs increased by 49.2% to R46,471 crore during July-Sept10 and decreased thereafter by 38.7% to R28,483 crore during July-Sept11. The net profit of these PSUs also increased by 69.5% to R25,681 crore during July-Sept10 and decreased thereafter by 76.1% to R6,145 crore during July-Sept11. Mostly oil marketing companies such as IOCL,HPCL and BPCL are responsible for this downturn.

The net sales of the PSUs rose by 25.5% to R2.63 lakh crore in July-Sept 10 and by 17.1% to R3.08 lakh crore in July-Sept11. So the operating profit to net sales ratio fell from 17.63% during July-Sept10 to 9.23% during July-Sept11. The net profit to sales ratio also decreased from 9.74% to 1.99%.

Interest outgo of these PSUs increased to 67.1% during July-Sept11 from a marginal increase of 6.7% during July-Sept10.

Among the PSUs, the significant increase in the growth of operating profit was seen with Petronet LNG, increasing from 6.4% during July-Sept10 to 61.4% during July-Sept11. In Oil Indias case, the operating profit increased from 22.4% during July-Sept10 to 47.3% during July-Sept11. In July-Sept11, ONGC had the highest operating profit of R15,601 crore followed by NTPC (R4,248 crore), NMDC (R2,938 crore), Oil India (R2,302 crore) and BHEL (R2,179 crore).

A steady decrease in the operating profit to net sales ratio was seen with 14 PSUs, key among them being NTPC, SAIL, Engineers India, Indraprastha Gas, GNFC, STC and National Fertilisers. The ratio steadily decreased for SAIL, from 29.41% during July-Sept09 to 12.08% during July-Sept11.

It is known that steel producers such as SAIL marked the worst performance in more than six quarters. The company suffered from the double impact of higher cost of raw materials as well as rupee depreciation. SAILs sales increased by a mere 2% to R10,836.68 crore due to sluggish demand. Its operating profit declined by 36.8% to R1,309 crore during July-Sept11.

On the other hand a steady increase in the ratio was seen with eight PSUs, including ONGC, Oil India, SJVN, Container Corporation and RCF. The operating profit to net sales ratio of ONGC steadily increased from 66.14% during July-Sept09 to 68.98% during July-Sept11.

Among the industries studied, a significant increase in operating profit was seen with electrical goods, engineering, gas distribution, oil exploration and mining/mineral/metal during July-Sept11.

A down ward trend in operating profit was seen in cases of aluminium, shipping, steel and trading.