Growing faith

Corporate India is buoyant as the fourth quarter results surpass expectations. Here's a look at the sectors that are spearheading the growth.

     Print Edition: June, 2010

India Inc has begun to regain its shine as companies report another quarter of robust performance. The 971 companies that declared their fourth quarter results till 10 May have, on an average, reported a sales growth of 32 per cent. The low cost of funds, coupled with a strong demand in the automobile, cement, engineering, IT, pharmaceutical and hospitality industries, led to a substantial rise in corporate earnings.

Aided by low financing costs and greater demand for two-wheelers and cars, the automobile industry witnessed a 255 per cent growth in profits. A lowcost inventory, along with higher operational efficiency, helped improve margins from 9 per cent in Q4 2008-9 to 14 per cent in Q4 2009-10 and the average EPS rose from 70 paise to Rs 5. On the other hand, metal companies benefited from the sharp rise in prices of iron and steel. The pharmaceutical, cement and engineering industries continued to grow at 16-25 per cent.

In 2009, the hospitality sector was battling with falling occupancy rates, which led to a 23-70 per cent fall in sales and profits. The trend reversed this year, with sales revenue growing by 14 per cent.

However, the rise in expenses is slowly becoming a cause for worry. Expenditure as a percentage of sales rose from 67 per cent in Q4 2008-9 to 72 per cent in Q4 2009-10. "There is complete cost optimisation with little room for further improvement. From now onwards, increasing the earnings will be challenging," says Ashu Madan, COO, Religare Securities. With the advantages of low-cost inventory and raw materials and the waning of benign interest rates, the next two quarters might prove challenging.

The tables on the adjoining page highlight the seven top performing industries in terms of sales and profit growth, along with the company that registered the highest earnings growth.

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