Tata Consultancy Services, TVS Motors and Larsen & Toubro all had one thing in common about their third quarter numbers: All reported strong sales growth that helped them accelerate their profit growth in the three months ended December 2010.

The initial set of close to 200 companies (excluding banks, NBFCs and the oil pack) that have so far reported December quarter numbers show a 26 per cent year-on-year growth in sales. This is higher than the 21 per cent growth the same set of companies reported in the preceding quarter. Overall, net profit growth also accelerated to 20 per cent(16 per cent). Though raw material cost pressure clearly escalated for manufacturing companies, it was salvaged by sectors such as software that dominated the initial set of results. Companies in select sectors such as two- wheelers also managed to hold on to profit margins through price increases.

Consumer space

The December quarter has been spectacular for the players in the consumer space. From bigger players in the automobile space such as Bajaj Auto and TVS Motors to the kitchen appliances maker TTK Prestige and the player in the retail tile market Kajaria Ceramics, sales growth was strong on exceptional volume growth. This was probably due to easy credit availability and the festival season promotional schemes. Banks, which were expected to witness some slowdown due to margin pressures, actually managed a good show with higher-than-expected credit growth and strong yields on advances. Axis Bank, IndusInd Bank and YES Bank were a few that beat market expectations. The several components of cost ? raw material, power/fuel and interest ? did see a sharp increase in the third quarter. Raw materials consumed shot up by 32 per cent and power and fuel by 28 per cent year-on-year. However, the aggregate picture shows operating profit margins holding steady at 23 per cent ( 23.3 per cent). There were two reasons for this ? one, the initial numbers include a number of software companies (accounting for 13 per cent of the sample's sales), where material costs are not a factor at all. Companies from sectors such as cement and steel, where margin pressures are most acute, are yet to declare numbers. Two, the larger companies that have unveiled results were also able to keep employee costs under control. Employee costs as a proportion of sales fell from 14 to 13 per cent over the two quarters.

RIL disappoints

While the companies analysed above managed to accelerate both sales and profit growth compared with the September quarter, the addition of index behemoth Reliance Industries to this sample significantly changes the picture. With RIL managing only a moderate growth in turnover at 6 per cent for December quarter (compared with 23 per cent in the September quarter), the overall sales growth for companies comes down to 18.5 per cent. PAT growth, however, looks better inching to 22 per cent against 20 per cent earlier.

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