Nov. 7, 2009 (The Hindu Business Line) --

Srividhya Sivakumar

A strong earnings rebound, swelling margins, but poor sales growth. This best describes India Inc’s performance in the just-ended September quarter. The 1,622 companies (on the basis of standalone financials excluding banks and other financial institutions), that reported their numbers, grew their profits by a whopping 39 per cent, registering a strong recovery from the decline of September 2008.

So, does this mean India Inc is firmly back on the growth path? Well, though profits show a mighty leap from the tepid levels of last year, a breakdown of the quarter’s performance shows that challenges still remain. Demand recovery is not yet broad-based and there remain big sector divergences. Profit growth was largely driven by lower costs. Here are the key takeaways:
Sales slump...



India Inc registered a 9 per cent decline in net sales during the quarter, with significant divergence across sectors. While auto, cement and consumer goods companies reported strong sales, led by improved volumes, others such as metals, steel and realty players reported a fall in sales, due to depressed realisations .

A closer look explains the overall performance better. For one, commodity prices having fallen considerably from last year’s levels significantly impacted realisations and consequently the sales reported by steel and metal companies. Second, given that sales had peaked in last year’s September quarter, a high base may also be partly to blame for the suppressed growth this time round. Companies had reported a 38 per cent growth in revenues in September 2008.

Another comforting factor is that India Inc managed to grow its revenues sequentially. Compared to the June 2009 quarter, companies put up a strong 9 per cent growth in sales, way better than the 2 per cent sequential decline recorded in the earlier June quarter. The recovery in commodity prices (over the quarter) appears to have aided producers of such commodities as steel and metal, which charted a sequential growth in sales.

Select companies in realty, auto components and engineering too bettered their sales sequentially; telecom disappointed sequentially. Auto, pharmaceuticals and IT sectors, however, registered top-line growth, both on a year-on-year and a sequential basis.

There was divergence in growth trends across market capitalisation categories too. While large-cap companies (market cap of over Rs 8,000 crore) saw a steeper decline in yearly sales (12 per cent), the mid-cap companies arrested the sales decline to 7 per cent. On a sequential basis, however, the large-caps led sales growth, followed by the mid- and small-cap companies.

Fairly sharp divergence was apparent among companies within a sector too.