As we move ahead of the earnings season for the second quarter of 2018-19, the corporates have registered a sharp improvement in performance both in topline as well as bottom-line driven by growth in larger companies.
According to a recent report released by CARE Ratings, the sample of 1,471 companies (excluding banks) who have declared their results so far reveals a higher growth in net sales at 23.4 percent during Q2FY19 as compared to same quarter in the previous fiscal.
The report also highlights that after increasing by negligible 1 percent in Q2FY18, the net profits of the same set of companies witnessed a sharp growth of over 26 percent year-on-year in Q2FY19.
The net profit margin witnessed a marginal expansion of about 20 basis points during the same period.
One basis point is a hundredth of a percentage point.
“This is nonetheless a positive sign for corporate India as it does indicate a positive recovery. This also corroborates with higher growth of 5.2 percent in the IIP (index of industrial production) for this quarter against 3.3 percent last year,” the report said.
The growth in the bottom line is despite total expenditure also registering a sharp increase of about 26 percent in Q2 FY19 vis-à-vis a growth of 5.8 percent in the same period last year. Among expenses, the cost of raw material increased the sharpest by over 40 percent during the same period.
According to the report, the aggregate interest cost increased by 16.6 percent as compared to 7.1 percent last year. The increase in the interest cost can be attributed to two factors - structure of interest rates and growth in credit.
“The RBI had increased the repo rate by 50 bps this quarter as against a reduction witnessed in Q2FY18. This got translated into higher MCLR (marginal cost of funds based lending rate) even though the base rate remained at a lower level. Growth in credit had been higher this quarter in both the industrial and services sector that has accounted for this higher increase in interest cost,” the report added.
The overall performance has been driven by the large companies (turnover over Rs 1,000 crores) that accounted for about 85 percent of the share in terms of total net sales of the sample.
Companies with sales above Rs 1,000 crores witnessed the sharpest growth of 25.4 percent in net sales and a double-digit growth of 14.5 percent during Q2 FY19 over the corresponding period the previous year.
First Published: IST