Sales have risen by a mere 6 per cent year-on-year for companies that have declared September quarter results so far. That’s a sharp decline from the 13 per cent and 14 per cent growth in the two preceding quarters, respectively. But cheaper inputs and efforts to curb debt have helped boost both operating and net profit.
Net profit rose by 18 per cent in the July-September 2014 period over the year-ago period, compared with 22 and 12 per cent in the June and March quarters, respectively. These numbers are for the 474 companies, excluding banks and financial institutions, that have declared results so far.
Material reliefWhile the decline in crude oil prices has been recent, other industrial inputs have been drifting down for a while. The stronger rupee has also made imported inputs cheaper. Companies have made the most of these trends in the July-September quarter.
Raw material costs as a proportion of sales came in at 45 per cent for the entire sample, down from 47 per cent in the September 2013 quarter. Cheaper coal helped cement companies pare their raw material bill; ACC and Ambuja Cements, for example, saw their material-to-sales ratio dip by four percentage points in the September quarter compared to the year-ago period.
Weak coal prices also bettered the cost situation for steel companies, compensating for muted selling prices. JSW Steel, for example, saw material prices shrink 2 per cent in the September quarter. Sectors such as tyres, consumer durables, construction, and real estate also saw fortunes improve on cheaper inputs.
These savings helped lift operating profit margins to 18.3 per cent compared with 17.5 per cent in September 2013 quarter. Margins have, in fact, been inching higher over the past three quarters. With prices of crude oil waning, base metal prices benign and the rupee steady, raw material prices look set to decline in the coming quarters as well. While the RBI has not cut its policy rates yet, interest costs for companies did drop.
For many, efforts to pare debt through asset sales or raising funds via equity seem to have paid off. Interest outgo dropped 1 per cent in the September quarter over the previous year, having previously shrunk 5 per cent in the June quarter.
Bharti Airtel, for instance, sold a stake in its overseas tower business to pare debt. Its consolidated interest outgo dropped 38 per cent in the September quarter compared to a year ago. Maruti Suzuki has also been lowering its interest burden over the past few quarters.
Telecom companies saw their collective net profits move up 121 per cent on lower interest costs. Cement companies saw a near-doubling in net profit in the September quarter . The automobile and consumer durables sectors also bettered their sales and profit growth. And FMCG and media companies kept up the momentum in profit growth.
Net profit margins for corporate India improved to 11 per cent in the September quarter compared with 10 per cent in the year-ago period. But with several companies yet to declare their numbers for the quarter, both the growth and margin numbers are liable to change.