BL Research Bureau

Companies’ sales continue to grow at a healthy pace, but higher input prices and interest costs have curtailed profit growth to the single digits.

That’s the trend evident from the first set of earnings numbers unveiled by listed companies for the July-September quarter. The 170 companies managed a sales growth of 29 per cent, but a profit growth of 6.4 per cent for the just concluded quarter.

The sales growth of 29 per cent, though lower than June levels (35 per cent), suggests that companies are not yet facing a significant slowdown in demand for their goods and services. However, input costs that remained higher than last year and a spike in interest costs prevented the healthy sales growth from being reflected in profit growth. Thanks to a jump in expenses, operating profits grew only 18 per cent, lagging behind sales growth.

A hefty increase in interest costs (up 29 per cent over last year) and a spike in depreciation charges further trimmed growth at the net profit level. Net profits for the universe grew at a single digit 6.4 per cent year on year, failing to keep pace with the operating profit growth. This probably reflects the tighter credit environment and interest rate increases effected until September.

In the numbers declared so far, companies in the Sensex basket, whose sales were up 39 per cent and net profit 10 per cent, have fared better than companies outside the index. In terms of sectors, banks (Axis Bank, HDFC Bank), mid-tier IT players (MphasiS, Geometric) and select infrastructure players (L&T, Jaiprakash Associates, Crompton Greaves) have managed net profit growth of 25 per cent or more, lifting the overall performance.

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