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Small companies took a harder hit to their profits in the latest quarter ended June 2013 than their larger counterparts.
Companies making up the BSE Smallcap index saw their aggregate net profits shrink 59 per cent in the latest, June, quarter compared with the year-ago period.
In contrast, the top 100 companies in the BSE 100 registered a profit drop of just four per cent.
Many small-cap companies slipped into losses in the June quarter. From 47 companies making losses at the end of last year, the number moved up to 67 in the June quarter, including JBF Industries, Triveni Engineering, Orbit Corp, Zuari Agro and Welspun Corp.
Cost pressures
However, small companies did well on the sales front, with the BSE Smallcap index constituents increasing aggregate sales 8.2 per cent over year-ago period; the figure was 2.7 per cent for the top 100.
Why have smaller companies not been able to translate good sales growth into better profitability?
Their limited scale of operations makes it harder for small companies to pass on cost increases through price hikes or wrangle better deals from suppliers.
In the June quarter, total expenses for the BSE Smallcap index companies rose nine per cent; cost increases for the BSE 100 or even mid-cap companies were much lower.
As they borrow at higher rates, small companies also shell out more on interest payouts than their larger peers.
Operating margins
Operating and net profit margins are, therefore, that much lower.
For instance, for the BSE Smallcap companies, the raw material to sales proportion at 60 per cent in the June quarter was higher than the 58 per cent in the corresponding quarter last year.
Operating profits were stagnant over a year ago. Operating margins dropped to 9.6 per cent against the 10.4 per cent in the June 2012 quarter.
In comparison, for the BSE 100 companies operating margins held steady at 17.8 per cent.
Similarly, interest payments by smaller companies ate away almost six per cent of sales compared with 2-3 per cent for the top 100 companies.
Banks, financial companies and oil marketing companies have been excluded from this analysis as their costs and revenue structures are different.
>bhavana.acharya@thehindu.co.in
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