Working Capital Of Private Sector Companies Rises 9.2% During 2001-02

Updated: Dec 23 2002, 05:30am hrs
Working capital is a derived item and represents the excess of current assets over current liabilities. An analysis of 300 major private sector companies (sales above Rs 100 crore) shows that nearly 46 per cent of the companies reduced their financial strength, measured in terms of working capital, in 2001-02 over the previous year.

The present study traces the trend of working capital per rupee of sales and profit ratio for 26 industries and 300 private sector companies in 2001-02 and 2000-01.

The top 10 companies, according to the profit ratio during 2001-02, were HCL Techno (58.91 per cent), Kothari Products (39.21 per cent), Rolta India (35.06 per cent), Moser Baer (32.26 per cent), Dr Reddys Lab (31.08 per cent), Infosys Techno (31.03 per cent), i-flex Solutions (30.54 per cent), Hindalco Inds (29.41 per cent), Digital Globalsoft (27.77 per cent) and MPhasis BFL (27.30 per cent). The highest profit ratio of HCL Tech can be explained from its net profit figures. The net profit of the company increased by 113.49 per cent to Rs 426.78 crore during 2001-02 from the level of Rs 199.91 crore during 2000-01.

On the other hand, the top 10 firms according to working capital per rupee of sales during 2001-02 were Zee Telefilms (1.94), GTL (1.66), Suashish Diamonds (1.44), KEC International (1.34), Shree Rama Multi-Tech (1.31), Su-Raj Diamonds (1.14), India Cements (1.08), i-flex Solutions (1.04), Nagarjuna Fert (0.99) and Indian Hotels (0.95). Only one company namely i-flex Solutions is common to both the lists.

Of the 300 firms, 116 witnessed a higher profit ratio in 2001-02 over 2000-01, while the remaining 182 showed a decline in profit ratio. GTL was the worst hit (53.14 per cent in 2000-01 to 20.62 per cent in 2001-02). At the other end of the spectrum, Dr Reddys Lab notched an impressive rise from 15.83 per cent in 2000-01 to 31.08 per cent in 2001-02.

In terms of working capital per rupee of sales, 151 companies recorded a fall,while another 129 showed a higher ratio in 2001-02 over 2000-01 and the remaining 20 showed no change. Indian Seamless Steels experienced a significant decline from 19.83 in 2000-01 to 0.28 in 2001-02. GTLs ratio increased from 0.95 in 2000-01 to 1.66 in 2001-02.

At the aggregate level, the profit ratio of the 300 major companies decreased from 7.80 per cent in 2000-01 to 6.27 per cent in 2001-02. The working capital per rupee of sales for the 300 companies declined from 0.33 in 2000-01 to 0.32 in 2001-02. This reflects that the corporate sector faced severe liquidity crunch.So profits declined during 2001-02.

In an industry-wise analysis, the gems&jewellery industry topped the list in terms of working capital per rupee of sales with 0.98 during 2001-02. However, this was mainly due to the large amount of working capital maintained by Suashish Diamonds. Grabing second place was electricity (0.97) followed by hotels (0.66), computers (0.58), aluminium&products (0.56), pharmaceuticals (0.43), and sugar (0.42). On the other hand, refineries (0.02), food products (0.12), cigarettes (0.19), tea (0.21), paper&products (0.22), automobiles (0 .23), chemical others (0.23) and steel&products (0.23) were the laggards with very low working capital per rupee of sales.

During 2000-01 to 2001-02, a substantial increase in working capital per rupee of sales was witnessed in aluminium&products (0.45 in 2000-01 to 0.56 in 2001-02), construction (0.28 to 0.35), hotels (0.52 to 0.66) and paper&products (0.18 to 0.22). On the other hand, sharp declines were seen in cement&products (0.32 in 2000-01 to 0.28 in 2001-02), cigarettes (0.31 to 0.19), chemical others (0.27 to 0.23), electrical goods (0.40 to 0.37), electricity (1.04 to 0.98), tea (0.24 to 0.21) and tyres&tubes(0.32 to 0.27). Normally, good companies enjoying rapid sales turnover would have relatively higher sales per rupee of working capital. The general trend has been of the working capital position improving for companies which have shown improvement in their profitability and similarly, companies which have witnessed a fall in their profitability, are facing liquidity crunch. In profit ratio, the aluminium & product industry topped the list with 29.41 per cent during 2001-02. However, this was mainly due to the significant amount of net profit recorded by Hindalco Inds. The computer industry came second with 22.57 per cent followed by cigarettes(21.04 per cent), shipping(17.69 per cent), pharmaceuticals(13.06 per cent), hotels(12.13 per cent) and tea(8.78 per cent).

The industries to record the lowest profit ratios were fertilisers(0.39 per cent), tyres&tubes(0.47 per cent), electrical goods(1.38 per cent), trading(2.35 per cent) and gems&jewellery(2.63 per cent). Majority gainers were food products(3.92 per cent in 2000-01 to 5.29 per cent in 2001-02), pharmaceuticals(11.95 per cent to 13.06 per cent), shipping(15.89 per cent to 17.69 per cent), sugar(1.04 per cent to 2.98 per cent) and automobiles(4.97 per cent to 5.54 per cent). Sharp declines were seen in cement&products(7.87 per cent in 2000-01 to 4.48 per cent in 2001-02), diversified(9.14 per cent to 6.53 per cent), electrical goods(6.21 per cent to 1.38 per cent), hotels(18.13 per cent to 12.13 per cent), tea(11.18 per cent to 8.78 per cent) and tyres&tubes(1.09 per cent to 0.47 per cent).

The higher the profit ratio, the greater is the working capital per rupee of sales. Aluminium&products, which had the highest profit ratio of 29.41 per cent in 2001-02, also had higher working capital per rupee of sales at 0.56.Computer industry followed second with 22.57 per cent(0.58 working capital per rupee of sales) and pharmaceuticals with 13.06 per cent(0.43 working capital per rupee of sales).