Corporate India falters, margins decline in 2007-08

Corporate India has finally yielded to the pressure of tightening demand conditions. Higher GDP growth may still prompt it to remain upbeat about future, as is reflected in the sharp rise in proposed investment in new projects, up 38% from Rs 6,96,366 crore in 2006-07 to Rs 9,63,839 crore during the first eleven months of 2007-08, but its performance last year has failed to match expectations.

Growth rate of both net sales and net profit has declined in 2007-08 compared to 2006-07.

An ET survey of 1,004 companies grouped under 43 industries finds that their aggregate net sales have grown 18.7% in 2007-08 against 27.1% in 2006-07. Aggregate net profit has increased 27.6% this time compared to 43.7% in 2006-07.

The deceleration in sales growth has in fact, been reflected in lower growth in overall industrial production too. The index of industrial production has grown 8.1% in 2007-08 against 11.6% in the previous year.

What is probably more disturbing is that the deceleration in growth parameters, this time, were not confined to select industry groups with their specific problems. Of the 43 industry groups, as many as 23 have witnessed a fall in the growth rate of net profit last year compared to 2006-07.

Five others have, in fact, recorded a decline in net profit against a rise in the previous year while the sugar industry has incurred a net loss. At the other end, 28 of them have recorded lower sales growth in 2007-08 compared 2006-07. Sugar industry has witnessed a fall in actual sales.

That the construction industry has recorded higher profit growth, aggregate net profit of 43 construction companies in the list has increased by 85.6% against 41.7% in 2006-07, is not surprising as the industry has gained significantly from the investment boom.

The investment in infrastructure development and in new industrial projects has led to substantial improvement in their performance. The aggregate turnover of the sample construction companies have grown 45.7% in 2007-08 compared to a 31.6% in the previous year.

Likewise, the chemical industry which has witnessed a sharp rise in investment in recent years too has posted better results. The aggregate net profit of 72 chemical companies has increased 52.5% last year against a decline of 15.5% in 2006-07. Their aggregate turnover has increased 24.3% in 2007-08 against 8.6% in the previous year.

Mineral industry, which has witnessed sharp rise in prices of late too has recorded higher profit growth last year. Aggregate net profit of six mineral companies has increased 66.4% in 2007-08 against 21.1% in 2006-07. Their aggregate turnover has grown 48.5% in 2007-08 compared to 13.9% in the previous year.

In contrast, the electrical goods, cement, man-made textiles, automobile, auto ancillaries, paper and plastic goods industry whose net profit had grown rapidly in 2006-07 following higher unit price realisation have witnessed a sharp deceleration last year.

Aggregate net profit of 26 cement companies has declined from 159.5% in 2006-07 to 32.6% last year. The growth rate of their aggregate sales has declined from 50.7% to 15.2% during the same period. The growth rate of sales of 12 automobile companies has declined from 25.3% in 2006-07 to 9.8% last year while that of net profit has fallen from 16.6 to 8.6% during the same period.

Growth rate of net profit of Tata Motors has declined from 25.2% in 2006-07 to 6% last year while that of Maruti has declined from 31.4% to 10.8% during the same period. Tata Motors has witnessed a fall in the growth rate of turnover too during the period.