Manufacturing shines, service sector slips in Q1: CII study

While manufacturing sector has witnessed a strong topline and bottomline growth in the first quarter of current fiscal compared to the corre...

While manufacturing sector has witnessed a strong topline and bottomline growth in the first quarter of current fiscal compared to the corresponding period previous year, the service sector has displayed a dismal performance. The same trend is expected in the second quarter ended October 2002, according to a financial analysis of over 2,500 companies conducted by Confederation of Indian Industry (CII).

The sample shows that the bottomline of manufacturing companies has posted a double digit growth of about 30 per cent in the first quarter of 2002-03 compared to 10 per cent growth in the same period last year. Topline for the same period for manufacturing sector has increased by 6 per cent which is about twice the growth recorded for the first quarter of last year. In contrast, the service sector displayed dismal figures both in topline and bottomline. ‘‘The hit in bottomline was sharper with net profits declining by 22 per cent as against a growth of about 1 per cent last year. Net sales dipped by 6 per cent as against a 18 per cent rise in the corresponding period last year,’’ CII’s report on the ‘State of the economy up to October 2002,’ says.

The profitability of the service sector has gone down with a decline in all the profitability ratios in the first quarter of this year as compared to first quarter of last fiscal. Also the drop in net sales is less than the drop in the operating profits which does not augur well for the service companies since this indicates an increase in the costs.

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For the manufacturing sector, profitability has improved significantly. The operating profit margin has moved up from about 14 per cent to about 15 per cent, while the net profit margin has moved up from 3.1 per cent to 3.8 per cent. The analysis is based on the financial performance of 1,903 manufacturing and 602 service companies.

The analysis revealed that manufacturing sector has been successful in reducing its debt burden. Interest expenses have declined by 7.6 per cent, likely to be the combined effect of swapping high cost debt with low cost debt and debt repayment. ‘‘Another important feature is that the operating profits have gone up more than the net sales which means that the costs are going down,’’ it says.

The report, however, said that despite positive growth trends in manufacturing sector, it is unlikely to achieve the 8 per cent GDP growth rate. ‘‘The service sector still seems to be reeling under the effects of the 9/11 event last year,’’ it says.

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