The rising cost of production and interest outgo have shrunk operating margins by 53 basis points to 15.16 per cent in the quarter ended December 2007, while net profit margin has slipped 39 basis points to 9.31 per cent as compared to 9.70 per cent in the corresponding quarter a year ago.
This is largely due to a subdued performance last quarter when net sales of 2,218 companies grew at an average 16.1 per cent against 28.21 per cent in the corresponding period last year.
The poor growth in sales affected net profits, which grew only 13.3 per cent against 79.7 per cent in the corresponding quarter last year.
What would worry investors is that the growth in profits, excluding extraordinary income, has been lowest in the last quarter from the last three quarters, if oil and gas companies are included or excluded.
Sales and profit growth has slowed down in the last three quarters. The sales growth rate of 16.1 per cent (including oil and gas companies) has been the lowest since the quarter ended March 2007. If one excludes oil and gas companies, corporate India's sales growth rate declined from 26.38 per cent in the quarter ended March 2007 to 16.32 per cent in the quarter ended December 2007.
Though operating margins were lower year-on-year when compared to the quarter ended September 2007, they were better than the quarter ended June and the quarter ended March 2007.
The cost of production increased by 16.82 per cent during the quarter ended December 2007, while employee costs were up by 24.56 per cent. Thanks to a softening of commodity prices and the rupee's appreciation which made imports cheaper, raw material costs increased by only 14.52 per cent.
That didn't help much as interest cost increased by a hefty 40.8 per cent, partly on account of fresh loans for foreign acquisitions and for payment of interest on foreign currency convertible bonds.
The provisions for corporate tax also remained high at 32.39 per cent, despite tax refunds for oil and software companies. The poor performance was seen across the board with sales toppers as well as the most profitable firms remaining vulnerable to recession.
Automobiles, cement, metals, oil and gas, pharmaceuticals and textiles sectors were hurt the most, even as engineering, infrastructure, media and telecom posted healthy growth.
