As Morn­ing Shows the Day, Q1Sales Hint at a Solid Way

In­dia Inc records highest sales growth in five quar­ters of 5.6% year-on-year

The Economic Times - - Front Page -

ET In­tel­li­gence Group

Mum­bai: In­dia Inc re­ported a re­vival in year-on-year sales growth in the June quar­ter al­beit amid pres­sure on prof­its and prof­itabil­ity. The trend is ex­pected to con­tinue since the next two quar­ters will re­flect grad­ual sta­bil­ity in busi­ness after the im­ple­men­ta­tion of the goods and ser­vices tax (GST) on July 1 and ex­pected higher de­mand due to the fes­ti­val season and a good mon­soon. How­ever, firm in­put costs in­clud­ing those of raw ma­te­ri­als and staff as a per­cent­age of sales, along with a ris­ing in­ter­est bur­den rel­a­tive to oper­at­ing profit may af­fect prof­itabil­ity.

A sam­ple of 1,024 com­pa­nies ex­clud­ing those in the bank­ing, fi­nance, and oil and gas sec­tors re­ported the highest sales growth in five quar­ters of 5.6% year-on-year. How­ever, oper­at­ing profit growth slowed to 3.5% after stay­ing above 6% in the pre­vi­ous five quar­ters. Growth in net profit at 10.6% was the slow­est in four quar­ters.

After in­clud­ing oil and gas sec­tor com­pa­nies, the sam­ple size in­creased to 1,043 and sales growth im­proved to 9.7% while net profit growth was just 1.7% in the June quar­ter.

While top line growth shows a grad­ual recovery, in­put costs seem to be inch­ing up. This is un­like a few quar­ters ago when com­pa­nies were able to im­ple­ment cost ef­fi­cien­cies, thereby pro­tect­ing mar­gins while sales growth was un­der pres­sure. For the sam­ple ex­clud­ing oil and gas com­pa­nies, raw ma­te­rial costs as a per­cent­age of sales inched up to 31% in the June quar­ter from 30.6% in the year-ago pe­riod. After fall­ing to 30% in the De­cem­ber 2015 quar­ter, the ra­tio has re­mained at around 31%.

The staff cost rel­a­tive to sales was 14.7% in the June quar­ter com­pared with14.9% a year ago. It has in­creased sig­nif­i­cantly from 11.8% three years ago.

Sales may con­tinue to rise though in­put costs and a ris­ing in­ter­est bur­den could af­fect prof­itabil­ity

The com­mit­tee has also sug­gested a for­mula for in­creas­ing bi­lat­eral en­ti­tle­ments of for­eign car­ri­ers in such cases, the of­fi­cial said. “The com­mit­tee has sug­gested se­lect­ing the higher one be­tween a flat in­crease by 10% of the ex­ist­ing ca­pac­ity and the av­er­age of the growth in the past three years in that par­tic­u­lar sec­tor,” he said.

Malaysia would be an im­me­di­ate ben­e­fi­ciary of this or­der, ac­cord­ing to the of­fi­cial, while Qatar would not be­come el­i­gi­ble for an in­crease un­der the scheme be­cause the util­i­sa­tion by In­dian car­ri­ers on that route is about 66%. An­a­lysts said the move did not con­sti­tute a long-term strat­egy.

“This could, at best, be termed an­other in­cre­men­tal move, which may be an­other short-term mea­sure. It may not ben­e­fit many coun­tries seek­ing more traf­fic rights,” said Kapil Kaul, CEO of avi­a­tion con­sul­tancy firm CAPA South Asia. “The coun­try can­not have open skies for coun­tries be­yond 5,000 km radi- us and very re­stric­tive regime be­low this thresh­old. The gov­ern­ment should have a long-term pol­icy, which is not com­plex. We may also need a pol­icy for al­lo­cat­ing traf­fic rights for In­dian car­ri­ers as we will soon have seven air­lines fly­ing in­ter­na­tional.”

Un­der the civil avi­a­tion pol­icy, the gov­ern­ment an­nounced open skies for coun­tries be­yond 5,000 km ra­dius. How­ever, for coun­tries within 5,000 km ra­dius, any in­cre­ment in bi­lat­eral en­ti­tle­ments will hap­pen only if In­dian car­ri­ers utilise 80% of the ex­ist­ing bi­lat­eral seat en­ti­tle­ment quota. “The de­ci­sion in the avi­a­tion pol­icy on 80% util­i­sa­tion for the in­crease and open skies for coun­tries be­yond 5,000 km is a clear and a long-term pol­icy,” said an­other civil avi­a­tion min­istry of­fi­cial.

De­spite the clar­ity in the for­mula, the min­istry is sit­ting over a pro­posal to in­crease bi­lat­eral seat en­ti­tle­ments be­tween In­dia and Dubai, where both In­dian and Dubaibased car­ri­ers have utilised 100% of the ex­ist­ing quota.

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