Can’t all bad years be like this

The largest private sector enterprise, Reliance Industries, itself showed the way in beating recessionary conditions. Industry pundits sang requiems about the automobile industry, but Bajaj Auto surprised the corporate world by achieving higher sales and profits. The banking sector led from the front and came out with good performances one after another. Software companies attracted even worldattention by notching up fabulous earnings. This was reflected on the stock markets with the Sensex rising to new highs before the nuclear explosions and sanctions brought back uncertainty to the market.

Reliance is one example which successfully weathered the South-east Asian crisis companies here dumped their petrochemical products at throwaway prices and the general fall in world prices. The company reported a 25 per cent rise in net profit to Rs 1,653 crore. Anil Ambani, managing director of Reliance, expects 20 to 25 per cent in sales and profits in the current year. Unaudited results of PSUs like ONGC, GAIL and IPCL were better than last year.

As like Reliance, several other companies managed to withstand the vagaries of lower customs duty, dumping of cheap foreign goods, poor demand and rising raw material costs. A study conducted by the Centre for Monitoring Indian Economy (CMIE) on the performance of the corporate sector has revealed that companies had reported a 20 per cent rise in sales and30 per cent increase in net profit for 1997-98. This is in sharp contrast to only 15 per cent increase in sales and a 33 per cent decline in net profit in 1996-97. Against the backdrop of the South-east Asian crisis and the general fall in currencies in the region, including India, this is considered as a healthy performance. This has come after Reserve Bank Governor Bimal Jalan’s statement that the slowdown in industrial growth “is a matter of concern for the growth of incomes in the economy as well as for the development of the financial sector.”

The CMIE study which covered 88 companies — including 20 public sector firms — revealed that the industry managed a draw-down of inventories and cutting costs on labour and overheads. Grasim Industries, the flag ship of the Aditya Birla group, reported a 16 per cent fall in net profit to Rs 230 crore, but the company saved Rs 22 crore by cutting raw material and energy cost. Reliance managed to increase sales and profits thanks to a spurt in volume growthwhich, together with lower prices, led to an increase in domestic demand.

The automobile sector has sprung some surprises so far. Bajaj Auto, the leading scooter manufacturer in the world, defied opinions and surveys by notching up a 5.4 per cent rise in net profit. Even though vehicle sales by the company declined by 6.3 per cent, it could still achieve a 1.1 per cent increase in sales turnover. However, auto majors like Telco and Ashok Leyland are yet to come out with results and both of them had reported a steep fall in vehicle sales in 1997-98. “Bajaj Auto and Telco did not undertake a year-end push in a bid to improve inventory and receivables management,” said a study by Merrill Lynch.

The year belonged to software firms, banks and financial institutions. IDBI led the strong show by banks and institutions with a 31 per cent rise in net profit to Rs 1,501 crore. ICICI was not behind as it surged ahead with a 40 per cent increase in profits to Rs 1,081 crore. “Due to the easy liquidity conditions,the institution managed to bring down its marginal cost of borrowings by 300 basis points,” said IDBI chairman S H Khan. Private banks like IndusInd Bank and ICICI Bank and HDFC also came out with good performance. Public sector banks like Bank of India and Bank of Baroda are also expected to repeat this performance.

On the other hand, software continued to make waves on the stock markets and overseas export markets. “We believe that the companies are likely to sustain a growth of 50 per cent plus and expand margins for software exports for at least another five years… there is a chance that Indian companies may be able to push the sales growth rate to over 75 per cent per annum and corner nearly 5 per cent of the global market by the year 2003,” said the Merrill Lynch study.

The story in the white goods sector is also somewhat surprising. Videocon International of the Dhoots showed a 52 per cent rise in net profit to Rs 125 crore despite severe price wars and discount offers. The company’s marginswere under pressure in the previous year. “It’s not only Videocon but others in the field are also going in for higher volume growth to improve the performance. Demand for consumer goods has started picking up,” said an industry spokesman. Similarly, the Rs 12,500 crore pharmaceutical sector is expected to maintain its 15 per cent annual growth rate. Companies like Dr Reddy’s Lab and Ranbaxy have already announced good profits for the year 1997-98.

Two sectors which are likely to be exceptions this year are steel and cement. These two sectors are already facing rising in raw material costs and low demand. The general slowdown in the industrial sector had affected steel and cement companies most. Marketmen and FIIs are keenly awaiting the results of Tata Steel, ACC and SAIL. Although hotel companies made good forex earnings, industry circles said, their performance leaves much to be desired as occupancy levels have not gone up. Multinational companies operating here generally made good shows. HindustanLever, the largest MNC in the country, reported a 35 per cent growth in profit to Rs 560 crore. However, Philips India, which is undergoing a restructuring, made a loss of Rs 14 crore.

The cut in corporate tax from 40 per cent to 35 per cent seem to have boosted the bottom lines of companies. This coupled with tough cost-control measures adopted by companies had a desired impact on the profit margins. The easy liquidity conditions and lower interest rates also helped the industry. As corporate sources said, the forthcoming union budget will play a crucial role in shaping the fortunes of the corporate sector. Confederation of Indian Industry and other trade associations have already demanded a hike in customs duty to protect the domestic industry from the vagaries of dumping by multinational companies.

Simultaneously, the ongoing restructuring exercise in the corporate sector has also helped in consolidating its activities. The rise in mergers, acquisitions, hiving of units and closure of loss-making unitswill result in higher bottom lines. Notwithstanding sanctions imposed by other nations after the nuclear tests, the corporate sector is hoping for a better show this year.