The Telegraph
Since 1st March, 1999
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Lower interest rates help firms to post higher profits

Mumbai, Oct. 8: India Inc seems to be headed for better times with the goddess of wealth smiling upon them. The Industrial Development Bank of India (IDBI) today said that during the first quarter of this year net profits of select companies shot up by a whopping 222 per cent, boosted by lower interest expenses.

While the trend of lower interest expenses showed that companies are taking advantage of the declining interest rate regime, IDBI went a step further to point out that the impressive increase in profits can be attributed to the turnaround of steel companies, better working results of automobiles, cement, textiles (except cotton textiles and artificial fibres), chemicals (except basic chemicals) and electricity generation sectors.

IDBI came up with this report after studying the financial performance of a sample of 600 assisted companies during the first quarter of this fiscal.

It showed that aggregate net sales of the sample companies increased by around 11 per cent to Rs 56,268 crore this year from Rs 50,748 crore in the same period last year, while other income increased by around 44 per cent.

Declining interest rate was a highlight point in the report. It showed that for the sample companies interest rates declined by around 14.8 per cent during the quarter under review. Interest expenses as a percentage of net sales thus came down to 5.8 per cent from 7.5 per cent last year.

Of the 28 industry groups, 19 groups recorded growth in net sales during the quarter under review.

Metal products recorded the highest growth in net sales, followed by iron and steel, plastics and plastic goods, machinery, food (other than sugar) and services. Further, 16 industry groups reported increase in net profit during the period.

“The industry groups that recorded appreciable increase in net profit include cement, iron and steel, electricity generation, automobiles, textiles (other than cotton textiles and artificial fibres), artificial fibres and chemicals (other than basic chemicals),” IDBI added.

Average gross margin for the sample companies improved to 17.2 per cent in the first quarter of this year from 16.5 per cent during the comparable period last year. Of the 28 industry groups, 16 recorded higher gross margins.

Net margin improved in respect of 18 industry groups, which include cement, electricity generation, automobiles, textiles (except cotton textiles and artificial fibres), chemicals (except basic chemicals), iron and steel, ceramic and refractories.

Total income of these companies went up by 11.3 per cent to Rs 57,277 crore. However, aggregate cost of production too rose by a similar margin to Rs 48,019 crore, while gross profit increased by around 16 per cent.

With India Inc set to unveil their second quarter numbers shortly, it is widely expected that the robust performance displayed during the first quarter will be maintained.

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