Stellar performance in bottomline

Written by Pradip Kumar Dey | Updated: May 24 2008, 06:58am hrs
Corporate profits witnessed robust growth in FY2006-07. Indias GDP grew by 9.4%, as compared to 9% in the previous year. The main drivers of growth were the manufacturing services and construction sectors.

The overall industrial sector recorded a growth of 10.9% as compared to 9.6% in the previous year. Overall economic buoyancy, together with bullish domestic equity capital markets, boosted investor sentiments attracting robust capital inflows into the economy.

Profits at every level - operating, gross, before tax, and after, was higher than the sales growth for FE 500. Margins were healthy and increased in 2006-07.

The operating profits of the 500 companies increased by 33.70% (on an annualised basis) to Rs 3,03,717 crore in 2006-07 from the level of Rs 2,27,160 crore in 2005-06. The gross profits of the 500 companies sprinted by 33.87% in 2006-07, when sales cantered at the relatively more speedy pace of 28.02%. In absolute terms, gross profits increased from Rs 2,07,298 crore in 2005-06 to Rs 2,77,510 crore in 2006-07. On the whole, the bigger companies garnered bigger profits with higher growth rate.

The operating profit of the first 100 (according to composite ranks) companies increased by 34.39%. The next two groups of 100 registered profits at the growth of 55.04% and 25.65% respectively. The fourth group saw a decline of -4.52%. And the last group of 100 saw the lowest growth of 22.58%.

On the other hand, the gross profits of the first 100 companies grew at 34.41%. The next group of 100 saw profits rise at the higher pace of 61.04%. The third group of 100 saw a lower growth of 24.58% in gross profit. But the fourth group showed a decrease of 9.45% in its gross profit.

The last group saw a growth of 22.96% in gross profit during 2006-07.

The Top 10 (according to composite ranks) recorded a growth rate of 28.53% in operating profit and 28.26% in gross profit - slower than FE 500 as a whole. In terms of gross profit, the share of the Top 10 in the aggregate declined from 41.41% in 2005-06 to 39.67% in 2006-07.

The Top 10 in terms of gross profits were ONGC, Reliance Ind, Indian Oil, SAIL, National Thermal Power Corp, Tata Steel, Bharti Airtel, Hindustan Zinc, Infosys Technologies, and TCS.

Within the group, four companiesnamely NTPC, Indian Oil Corp, SAIL, and Bharti Airtel have interchanged their positions. Four others had unchanged ranks from 2005-06. Two new companies; namely Infosys Technologies and Hindustan Zinc entered the top 10 league for the first time.

The highest rate of rise in gross profits was reported by Zuari Inds ( 814.81%), United Spirits (655.58%), Shree Precoated Steel (598.32%), Lanco Infratech (597.19%), Futura Polyester (517.42%), ICI(I) (476.93%), India Cements ( 368.61%) and TIL (345.24%). Most of these fantastic numbers, however, represent statistical achievements rather than real growth because of the very low base of profits in the 2005-06.

The aggregate profits before tax (PBT) of FE 500 rose even faster than the operating profit. PBT grew by 38.9% from Rs 1,59,675 crore (on an annualised basis) in 2005-06 to Rs 2,21,794 crore in 2006-07. There were also fewer loss makers during the year. The number of companies reporting red at the PBT level was 18 in 2006-07.

Significant rates of rise in PBT were registered by Southern Iron & Steel (9759.62%), Atlas Cycles (H) (3019.91%), Moser Baer (2943.08%), Ceat (2548.87%), United Spirits (1273.43%), Zuari Inds (1181.77%), Unitech (1143.83%), Shree Precoated Steel (1099.9%), India Cements (928.88%), and HT Media (770.29%).

FE 500 performed significantly better in the bottomline number of profit after tax (PAT), with ONGC tries leading the way. As for operating profit, gross profit and PBT, ONGC was way ahead of the others in PAT. It earned Rs 15,643 crore in post-tax profits in 2006-07.

The Top 10 (according to composite ranks) raised PAT by 30.95% from Rs 48,879 crore (on an annualised basis) in 2005-06 to Rs 64,009 crore in 2006-07. FE 500 as a group increased PAT by 40.73%, from Rs 1,16,767 crore to Rs 1,64,322 crore during the same period.

In the ultimate analysis, though, what matters is not the size of profits (a big company should earn more profits anyway), but profitability. This can be measured in many ways, with return on sales (PAT as percentage of net sales), return on assets (gross profits as percentage of assets) and operating profit margin (operating profit as a percentage of net sales) being the main ratios. In 2006-07, profitability was clearly up, with as many as 41 companies reporting an over 30% return on assets.

Mention may be made of Hindustan Zinc (75.76%), NMDC (71.94%) and Sesa Goa 51.82%) .

In terms of return on sales (PAT to net sales), 17 companies against 14 last year had ratios above 30%. Notable among them were: The GE Ship (41.28%), DLF (35.80%), and GlaxoSmithKline Pharma (35.46%).

In terms of OPM, 71 companies reported over 30% during 2006-07. Mention may be made of NMDC (85.22%), Hindustan Zinc (77.93%), and National Aluminium (65.71%).

These can well be called the most profitable companies of 2006-07.