Top firms? profit growth slows in Q2, small cos fare better

According to a study carried out by FE, a set of around 2,500 companies saw their net profit grow more than 20%. However, when the large industrial houses were isolated, they managed to show a lower number. In absolute terms, the total net profit of the 25 largest business houses has increased to Rs 17,740 crore in July-September 2009 from Rs 17,070 crore in July-September 2008.

Analysts attribute various reasons to this smaller growth. One of them is the sheer size of the companies and their plans which tend to make them less nimble in testing times. Hitesh Agarwal, head of research, Angel Broking, says, ?Many big industrial houses in India had gone for acquisitions prior to the Lehman crisis, which went sour because of the global financial meltdown. Apart from this, many large companies embarked on huge capacity expansion and the downturn in the global economy came as a major setback. This affected the profitability of big industrial houses in the second quarter.?

Another analyst with an overseas broking firm reckons that these big industrial houses also tend to have a larger base, hence growth numbers tend to be lower. The aggregate net profit of the group of companies decreased 6.5% to Rs 3,857 crore in July-September 2009 period from a profit of Rs 4,127 crore in July-September 2008. This is significant as the Reliance Group accounts for 25% or more of the total sales of the top 25 business houses. The group witnessed a 4.6% increase in sales.

Overall, the total sales of the 25 houses decreased marginally, by 0.7% to Rs 1.75 lakh crore in July-September 2009, against Rs 1.76 lakh crore in July-September 2008. The total other income of these business houses decreased 10.6% to Rs 3,509 crore in July-September 2009 from the level of Rs 3,927 crore in July-September 2008.

The ratio of PAT (profit after tax) to sales of the 25 business houses increased from 9.67% in July-September 2008 to 10.12% in July-September 2009. Among the top 25, the ratios increased significantly from July-September 2008 to July-September 2009 in the case of Mahindra, Munjal, Bajaj, BK Birla, Hinduja, KK Birla and Torrent groups.

Among the 25 business houses, the ratios decreased significantly from April-June 2008 to April-June 2009 in the case of ADAG, Murugappa Group and UB. The ratio of ADAG decreased from 14.45% to 5.88 % during the study period.

The fastest growth in net profit was notched up by the Jaiprakash group, at the rate of 245.4% followed by Welspun Group at 186.9%. The Jaiprakash group logged sales growth of 55.2%, followed by Mahindra with 25.9%, and Ruchi with 24.8%. Among the Jaiprakash group companies, Jaiprakash Associates showed the highest growth of 328.4% in net profit during July-September 2009. A significant growth in sales was also seen in the case of the Munjal, Bajaj, Welspun, BK Birla and Torrent groups.

More than 75% increase in net profit was witnessed in the case of 11 business houses.