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
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.