New Delhi: Sustained growth in net profits and gradual increase in productivity and capital efficiency have enabled Indian corporate sector to cut costs and be globally competitive, said industry chamber Confederation of Indian Industry quoting a study analyzing last eight quarters of corporate sector results. The CII study is based on available quarterly corporate results pertaining to manufacturing, services other than financial services and financial services sectors.
The CII study shows that for the manufacturing companies, there has been a consistent reduction in raw material costs as a percentage of sales during the last eight quarters by 1.3%, even while raw materials’ prices have gone up, reflecting greater cost competitiveness of the Indian manufacturing sector.
Further, similar trends were observed by the study on power and fuel costs. In the last eight quarters, while the power and fuel costs have gone up from the supply side, when measured as a percentage of sales, this has come down marginally by 0.1% of net sales from 2.3% to 2.2% over the same period, reflecting efficiency of operations especially in the manufacturing sector.
Similarly, manpower costs as a percentage of sales have also come down during the last eight quarters. The manpower costs as a percentage of sales registered a decline of 0.5 % from 7.1% for quarter ending June 2006 to 6.6% for quarter ending March 2008. This is despite the increase in wage bill and in employment reflecting improving labour productivity in corporate India.
Increases in productivity and efficiency have contributed to improvements in net profits of Indian corporates. Net profit margin, measured as net profits as a percentage of sales, over the last eights quarters have increased from 8.8% to 9%. This is corroborated by the fact that corporate tax collections have increased consistently upwards and for the year 2007-08, the net corporate tax collections have grown by 32.1%, said the CII study.
Observing the corporate sector performance over the eigth-quarter period and also the increase in corporate tax collections, the CII study has suggested that the micro trends that contribute to the macro fundamentals are strong. With robust corporate performance and consistent bottomline growth, there is a larger room for capacity expansion, and hence the trend of investment led growth of the Indian GDP would continue.
With higher Gross Domestic interest rates, increasing capex by private sector and healthy ICOR at around 4.0, the CII study states that India could record a GDP growth of about 8.6% during 2008-09.