Mirroring India’s economic growth, most companies have seen a step-up in the pace of growth of sales as well as operating profits in the January-March quarter, though net profit growth rates have taken a hit because of the rising cost of capital.
A Mint analysis of 2,182 companies that have declared their financial results for that quarter shows that growth in net sales and operating profits has accelerated, noticeably so, for smaller corporations
Out of 2,182 firms, 2,033 companies, which fell in the category of net sales below Rs500 crore, saw a year-on-year growth of 24.25% in revenue in the March quarter, compared with a growth of 23.18% in the December quarter and a growth of 23% in the September quarter. These firms also saw a growth of 49.85% in operating profit for the March quarter, well above the rate of growth for the previous two quarters.
Analysts say the acceleration in revenue growth is the result of two factors: volume growth on account of buoyant demand and higher realizations due to the return of pricing power.
With most industries operating at or near full capacity, it has been possible for companies to raise prices.
Also, operating margins seem to be improving. “We have seen an unusual trend where operating profits have grown more than net profit,” said Prashant Sawant, an economist at Anand Rathi Securities, a Mumbai-based brokerage. “Among the companies we track, operating profits grew at 40%, while net profits grew at 35%, compared with the previous quarter,” he said.
Analysts say this is partly the result of higher volumes, which have led to economies of scale. Also, while raw material prices continue to rise, the pace of the rise has slowed.
But net profits (adjusted for exceptional items) for these firms showed sharply lower growth of 47.45% for the March quarter,?compared with 71.28% for the December quarter.
For larger companies, the fall in the growth rate has not been so sharp. “Larger companies are less affected by the interest rate hike than smaller ones because they can resort to external commercial borrowings, foreign currency convertible bonds, etc., but smaller companies are still dependent on bank loans,” said Lalit Thakkar, head of research at Angel Broking.
Unlike the smaller companies, firms with net sales of more than Rs5,000 crore saw their net sales growing at 16.24% in the March quarter, well below the 24.35% rate in the December quarter.
But if one excludes oil refining and marketing companies—whose profits are very volatile, being impacted by changes in government policies—other companies with net sales above Rs5,000 crore have actually seen higher growth in the March quarter. Minus the oil firms, net sales for big companies went up by 42.29% year-on-year in the March quarter, against 25.3% in the December quarter.
The same trend is seen in net profits too. The growth rate of net profits of these firms dipped in the March quarter compared with the year-ago period. But once oil companies are excluded, things change dramatically, with the rate of growth in net profit accelerating in the March quarter.
Again, once oil companies are excluded, there has been an acceleration in growth in operating profits, while the rate of growth for net sales has remained about the same for the last three quarters.
Non-oil firms with net sales of more than Rs5,000 crore have been clocking higher net profit growth every quarter. While net profit for the March quarter grew by 45.08%, the growth was 41.8% in the December quarter and 26.79% for the September quarter.
“The impact of interest rates hikes will be felt in the first quarter of the new fiscal year because of a lag effect,” said Angel Broking’s Thakkar. “Demand for EMI-driven products, such as auto and consumer durables, could be most vulnerable.”