Indian corporates as a whole saw their net profits fall 9.5 per cent in the first quarter of this financial year, data released on Wednesday by the Reserve Bank of India shows. While certainly a poor performance, this is better than the 12.5 per cent fall seen in the previous quarter.
“Net profit continued to contract in Q1 2015-16 at the aggregate level due to a contraction in the manufacturing sector. The IT sector showed a very low but positive year-on-year growth in net profit against a contraction in Q4 2014-15,” the RBI release on the financial performance of non-government non-financial companies said.
The manufacturing sector indeed did perform very poorly, with net profits contracting 14.3 per cent in the first quarter. This is even worse considering that net profits of the sector grew 27.6 per cent in the same period last year, the RBI data shows.
The data shows that a 4 per cent fall in ‘other income’ and a consistently growing interest expense component meant that, even though total sales eclipsed raw material, labour, and fuel costs, manufacturing companies still recorded net profits significantly lower than in the same period last year.
However, this could have been far worse. The manufacturing sector has benefited tremendously from the ongoing fall in commodity prices. Expenditure on raw materials for the sector contracted 13 per cent of what it was in the same period the previous year.
While some of this contraction in raw materials expenditure is due to lower sales— which contracted 4.8 per cent in Q1 2015-16 compared to 6.6 per cent in the previous quarter — the rest is likely to do with the lower costs of materials.
“Sales in the manufacturing sector also contracted by 4.8 per cent. The services (other than IT) sector decelerated and the IT sector recorded improvement in comparison with the previous quarter,” the release added.
The IT sector’s net profits grew a little over 3 per cent in the first quarter of this financial year. Although this is far lower than what it had achieved in the same period of the previous year, it should come as some relief following a poor performance in the last quarter of 2014-15.
While the growth in the IT sector’s total expenditure, at 12.4 per cent, outpaced the growth in the sector’s total sales (9.3 per cent), a 17 per cent increase in ‘other income’ pushed the sector into profitability.
While the robust IIP data for August suggest that there was a pickup of industrial activity in that month, the early bird results so far suggest that the second quarter will see more of the same — nominal revenue growth and slow profit-growth.
