Higher Q2, Q3 profits contributed 7% GDP: CII

But corporate turnover and operating profits grew 10 per cent stronger over the April-December 2004 period compared with the last fiscal, as both services and manufacturing performed well. The CII report states that growth in operating profits was 10 percentage points stronger, at 36 per cent.

In the manufacturing sector, the most visible factor was a drop in interest costs from the steep 22 pc decline witnessed last year. This reversal in the movement of interest costs is even more strongly reflected in the services sector where interest costs rose by 14.8 percentage points. This could point to the upturn in interest rates in the last couple of months, points out CII.

Service sector sales also grew by 36.8 pc in the first three quarters of 2004, stated CII, but profitability though it grew well, was no challenge to the growth in manufacturing. The report finds a rise in profit margins for manufacturing, and a decline for the services sector. In the 544-manufacturing firms examined, CII found operating margins increased from 14.8 to 17.4 pc year on year, while post-tax margins jumped 4 percentage points to 8.7 pc.

It also reports a consensus in industry over the increase in profit after taxes (PAT) margins reflect greater capacity utilisation as sales volumes have increased, unit fixed costs have declined and had helped to absorb the rise in variable input costs.

Through the average of operating margins (PBDIT as a percentage of net sales) is higher in the manufacturing sector, with a sustained proportion of companies clustering in the 10 to 15 per cent range, companies in the services sector are more evenly spread-out across the 0 to 40 per cent range.

According to CII, for most firms, margins varied from 0 to 5 pc or from 10 to 15 pc. At the same time, about 6 pc of firms earned negative margins of -20 pc and below.