The financial performance of the private corporate business sector in the first half of 2002-03 (April to September 2002) is assessed in this article, based on abridged financial results of companies published in the financial/ news dailies and also collected from the major Indian stock exchanges. These data on the selected items are generally provisional in nature and the results based on these data are only indicative. The listed companies have been usually reporting results for the first half of the accounting year along with the results of the second quarter (July to September). However, this practice is not followed by some of the companies. The results for the first half in respect of 146 such companies were derived by aggregating their results for the first and second quarters of 2002-03. The study covers 1,034 non-financial non-Government public limited companies¹. The article includes size-wise and industry-wise analysis of the performance of these companies. Based on the abridged financial results of 1,236 companies for the first quarter (Q1 : April to June 2002) and 1214 companies for the second quarter (Q2 : July to September 2002), a review of the performance of the private corporate sector including a brief analysis of major components of expenditure over the first two quarters of 2002-03 has been presented.

Overall Performance

The performance of the private corporate sector during the first half of 2002-03 as compared to the first half of the previous year is characterised by higher sales, reduced interest payments and improved profitability. Sales of 1,034 non-financial non-Government public limited companies registered a rise of 8.7 per cent to Rs.1,82,057 crore in the first half of 2002-03 (Table 1). Total expenditure amounting to Rs.1,56,215 crore went up by 8.0 per cent - at a rate lower than that of sales. Depreciation provision at Rs.8,207 crore increased by 4.6 per cent. Gross profits moved up by 11.5 per cent to Rs.21,610 crore during the half-year under review. Interest payments declined by 10.6 per cent to Rs.7,099 crore. Pre-tax profits moved up by 26.9 per cent to Rs.14,512 crore. Profits after tax amounting to Rs.10,994 crore recorded a rise of 22.9 per cent in the first half of 2002-03. Of these 1,034 companies covered in the study, 747 companies reported post-tax profits in the period under review as against 733 companies in the corresponding period of the previous year.

With a view to obtaining a comparative picture of the direction and magnitude of changes, the growth rates of select indicators of the 1,034 non-financial non-Government companies in the first half of 2002-03 were compared with the corresponding rates of 1,209 companies in the first half of 2001-02, covered in the previous study. As the selected companies in the two studies are not identical, the comparison over the years is broad and only indicative.

Table 1 : Financial Performance of 1034 Non-Financial Companies, First Half of 2002-03
	2002-03 (April-Sept.)	Growth rate (Per cent)
Item	(Rs. crore)	2001-02 (April-Sept.) *	2002-03 (April-Sept.)	Annual 2001-02 **
1	2	3	4	5
Number of companies	1034	1209	1034	1242
Sales	1,82,057	3.2	8.7	2.4
Other income	3,975	9.2	-8.2	16.8
Total expenditure	1,56,215	2.9	8.0	2.8
Depreciation	8,207	12.2	4.6	12.7
Gross profits	21,610	3.5	11.5	-1.1
Interest	7,099	1.0	-10.6	-5.3
Profits before tax	14,512	5.3	26.9	2.4
Tax provision	3,517	10.1	41.0	12.3
Profits after tax	10,994	4.1	22.9	0.0
Paid-up capital	24,379	5.1	2.7	9.2
* : Performance of Private Corporate Business Sector during the first half of 2001-02, RBI Bulletin, March 2002, pp 135-150. ** : Performance of Private Corporate Business Sector 2001-02' , RBI Bulletin, October 2002, pp 651-666.

The performance of the private corporate sector during the first half of 2002-03 showed an uptrend as evidenced by increase in the growth of sales and profits accompanied by substantial reduction in interest payments (Chart 1). Sales registered a higher growth of 8.7 per cent in the first half of 2002-03 as against the rise of 3.2 per cent in the corresponding period of the previous year. Gross profits increased by 11.5 per cent in the half-year ended September 2002, as compared with an increase of only 3.5 per cent witnessed in the corresponding period of the previous year. Interest payments declined considerably by 10.6 per cent during the period under review as against an increase of 1.0 per cent observed in the same period of the previous year. Profits before tax rose by 26.9 per cent in the first half of 2002-03 as against 5.3 per cent in the first half of 2001-02. As most of the companies started reporting tax provision inclusive of deferred tax provision, tax provision of select companies posted a steep rise of 41.0 per cent (10.1 per cent in the first half of 2001-02). Despite such high growth in tax provision, post-tax profits registered a high growth of 22.9 per cent as compared with an increase of 4.1 per cent in the corresponding period of the preceding year.

Profit Allocation, Profitability and Other Ratios

Interest cost of sales ratio of interest to sales was lower at 3.9 per cent in the first half of 2002-03 as compared with 4.7 per cent in the first half of 2001-02 (Table 2). The interest burden, represented by the share of interest payments in gross profits, was at 32.8 per cent - lower by 8.2 percentage points during the period under review. Profit margin on sales (gross profits as percentage of sales) at 11.9 per cent and return on sales (post-tax profits as percentage of sales) at 6.0 per cent in the first half of 2002-03 were marginally at higher levels than the corresponding period of the previous year.

Table 2 : Profit Allocation and Profitability Ratios, First Half of 2001-02 and 2002-03
			(Per cent)
Ratio	2001-02	2002-03	Annual
	(April -Sept.)	(April -Sept.)	2001-02
1	2	3	4
Number of companies	1034	1034	1242
Profit Allocation Ratios
Tax provision to Profits	21.8	24.2	21.9
before tax
Interest to Gross profits	41.0	32.8	43.5
Profitability Ratios
Gross profits to Sales	11.6	11.9	10.9
Profits after tax to Sales	5.3	6.0	4.8
Other Ratios
Interest to Sales	4.7	3.9	4.7
Interest to Expenditure #	4.9	4.1	4.9
Interest coverage (number)	2.4	3.0	2.3
# Expenditure includes interest and depreciation provision.

Rates of Growth and Profitability according to Size of Paid-up Capital

The distribution of the number of companies covered in the study according to the size of paid-up capital (PUC) showed a greater concentration in the lower PUC size class of ‘Rs.1 crore to Rs.5 crore’ and ‘Rs.5 crore to Rs.10 crore’. These two size classes together account for 52.3 per cent of the PUCs of all the companies. The selected companies in two size classes have a share of only 11.5 per cent of the PUC of all the selected companies (Table 3). The top 190 companies, each with paid-up capital of ‘Rs.25 crore and above’ (18.3 per cent in terms of number) accounted for as much as 72.7 per cent of the PUC of all the companies covered in the study.

During the period under review, the growth rates of key performance indicators of very large companies (each with PUC of Rs.25 crore and above) and companies belonging to the size class of ‘Rs.10 crore to Rs.15 crore’ were observed to be generally lower than those of other size groups. Sales of the top 190 companies rose by 7.3 per cent, while their total expenditure rose at a lower rate of 6.4 per cent. For companies in the immediately preceding size class of ‘Rs.15 crore to Rs.25 crore’, growth in sales and expenditure were the highest at 14.8 and 14.3 per cent respectively. Sales in respect of companies in the size class of ‘Rs.10 crore to Rs.15 crore’ increased by 7.9 per cent, with growth in their total expenditure slightly lower at 7.7 per cent. Overall, the growth in sales (8.7 per cent) was higher than growth in expenditure (8.0 per cent).

The companies belonging to the top PUC size class of ‘Rs.25 crore and above’ recorded an increase of post-tax profits by 21.7 per cent during the first half of 2002-03. Companies in the PUC size class of ‘Rs.1 crore to Rs.25 crore’ recorded a higher rise in post-tax profits ranging between 29.1 per cent and 36.1 per cent, except for the companies in the size class of ‘Rs.10 crore to Rs.15 crore’ which witnessed a growth of 13.9 per cent in the after-tax profits.

Table 3 : Growth Rates of Select Items According to Size of Paid-up Capital during the First Half of 2002-03
Size group	No of	Paid-up capital		Growth rates (Per cent)
(Rs. crore)	Comp-	Amount	Per cent	Sales	Total	Depre-	Gross	Interest	Profits	Tax	Profits
	anies	out-	share		expendi	ciation	profits		before	provision	after
		standing			-ture	provision			tax		tax
		(Rs.crore)
1	2	3	4	5	6	7	8	9	10	11	12
Less than 1	46	28	0.1	4.0	1.0	5.9	50.1	1.7	94.5	145.2	80.1
1 – 5	278	943	3.9	10.5	10.1	12.0	17.9	-4.3	38.0	64.0	29.1
5 – 10	263	1,847	7.6	13.4	13.5	9.1	14.2	-8.5	42.0	61.3	36.1
10 – 15	148	1,777	7.3	7.9	7.7	3.1	10.0	-2.1	20.7	41.9	13.9
15 –25	109	2,048	8.4	14.8	14.3	8.2	19.2	-2.4	34.9	41.0	32.8
25 and above	190	17,735	72.7	7.3	6.4	3.8	10.3	-12.8	25.3	38.8	21.7
All Companies	1034	24,379	100.0	8.7	8.0	4.6	11.5	-10.6	26.9	41.0	22.9

Fall in interest payments accompanied by higher growth in the sales resulted in decline of interest cost of sales for all the size classes. The ratio of interest to sales varied between 2.5 per cent and 4.2 per cent during first half under review (Table 4). In particular, interest cost of sales for companies in the size class of ‘Rs.25 crore and above’ was lower at 4.1 per cent in the first half of 2002-03 (5.0 per cent in the corresponding half of the previous year). Likewise, interest burden for companies in this size class eased to 31.0 per cent in the first half of 2002-03 (39.2 per cent in H1: 2001-02).

Profit margin (gross profits to sales) and return on sales (profits after tax to sales) were higher for companies in all the size classes, as compared to the corresponding period of the previous year. These ratios of profit margin and return on sales in respect of companies in the top size class of ‘Rs.25 crore and above’ continued to remain highest at 13.1 and 6.9 per cent, respectively in the half-year ended September, 2002 (12.8 per cent and 6.1 per cent respectively in H1: 2001-02). Further, it is observed that the profitability tended to improve with the increase in the size of the companies.

Industry-wise Performance

Information on major industrial activities of companies is not available in the abridged financial results for several companies. In such instances, information available from newspapers or the previous annual reports of the companies has been used. This is a limitation to the industrial classification adopted in the study.

Growth rates of major indicators across the industry groups showed considerable variation (Table 5). Sales of engineering companies rose by 14.7 per cent whereas chemical industries recorded sales growth of 3.5 per cent during the first half of 2002-03.

Table 4 : Profit Allocation and Profitability Ratios According to Size of Paid-up Capital during the First Half of 2002-03
											(Per cent)
Size group	Profit allocation and other ratios								Profitability ratios
(Rs. crore)	Tax provision to Profits before tax		Interest to Gross profits		Interest coverage ratio (number)		Interest to Sales		Gross profits to Sales		Profits after tax to Sales
	2001-02	2002-03	2001-02	2002-03	2001-02	2002-03	2001-02	2002-03	2001-02	2002-03	2001-02	2002-03
1	2	3	4	5	6	7	8	9	10	11	12	13
Less than 1	22.1	27.8	47.9	32.5	2.1	3.1	2.6	2.5	5.4	7.8	2.2	3.8
1 – 5	25.5	30.3	47.4	38.5	2.1	2.6	3.2	2.8	6.8	7.3	2.7	3.1
5 – 10	23.2	26.4	55.0	44.1	1.8	2.3	4.5	3.6	8.2	8.3	2.8	3.4
10 – 15	24.4	28.7	46.8	41.6	2.1	2.4	4.6	4.2	9.8	10.0	3.9	4.2
15 – 25	25.3	26.5	42.0	34.4	2.4	2.9	3.9	3.3	9.3	9.7	4.0	4.7
25 and
above	21.1	23.4	39.2	31.0	2.6	3.2	5.0	4.1	12.8	13.1	6.1	6.9
All
companies	21.8	24.2	41.0	32.8	2.4	3.0	4.7	3.9	11.6	11.9	5.3	6.0

Table 5: Industry-wise Growth Rates of Select Items, First Half of 2002-03
	Industry/	No of	Paid-up capital		Growth rates (Per cent )
	Industry-group	comp-	Amount	Per	Sales	Total	Depre-	Gross	Interest	Profits	Tax	Profits
		anies	outstan-	cent		Expen-	ciation	profits		before	provi-	after
			ding (Rs.	share		diture	provi-			tax	sion	tax
			crore)				sion
1		2	3	4	5	6	7	8	9	10	11	12
1.	Engineering	282	6476	26.6	14.7	12.5	7.0	38.9	-2.0	117.9	48.3	188.1
	Of which:
	i) Iron and steel and	31	2298	9.4	19.0	13.8	10.8	82.1	2.2	#	203.1	#
	allied products
	ii) Automobiles and	44	1240	5.1	21.8	17.8	4.6	73.9	-23.0	138.9	92.3	168.6
	ancilliaries
	iii) Electrical machinery	87	1265	5.2	6.4	4.8	5.2	28.6	10.8	56.9	46.7	61.9
	iv) Other machinery	59	839	3.4	3.2	3.5	0.7	19.9	1.5	&	21.0	&
2.	Chemicals	207	5113	21.0	3.5	2.4	3.6	8.9	-15.4	20.0	54.0	11.1
	Of which:
	i) Basic industrial
	chemicals	89	2958	12.1	-0.8	0.0	1.2	-12.1	-13.6	-8.2	76.3	-56.9
	ii) Pharmaceuticals and	59	950	3.9	15.4	13.2	13.5	28.2	-19.4	38.4	70.7	32.0
	drugs
3.	Cement	24	1030	4.2	5.6	8.9	11.6	-24.6	-2.1	-51.3	1.8	-60.3
4.	Electricity	6	421	1.7	12.8	8.3	11.9	1.7	1.7	1.6	30.3	-7.7
	generation and supply
5.	Construction	19	150	0.6	17.3	20.0	6.9	-4.1	2.1	-15.0	-15.0	-15.0
6.	Textiles	103	1876	7.7	2.2	-0.4	0.6	46.7	-29.9	#	99.4	#
7.	Tea	11	139	0.6	3.4	5.6	11.0	-8.7	33.2	-19.4	-39.0	-13.1
8.	Sugar	9	130	0.5	30.7	41.6	11.8	-66.9	-7.4	$	-38.5	$
9.	Food processing	30	413	1.7	13.5	14.6	19.7	4.3	-16.5	8.1	14.6	5.4
10.	Rubber and	12	207	0.8	11.8	7.9	4.3	101.5	-17.0	#	410.1	#
	rubber products
11.	Paper and paper	28	543	2.2	3.2	4.2	4.3	4.9	-5.4	19.2	68.3	7.4
	products
12.	Plastic products	26	339	1.4	13.0	8.8	11.6	46.5	-8.5	118.8	119.7	118.6
13.	Information	48	774	3.2	18.6	23.4	16.2	2.9	-3.3	3.1	36.4	-0.5
	technology
14.	Trading	27	165	0.7	10.0	9.8	10.3	-6.7	-10.1	-2.8	41.1	-11.4
15.	Hotels	15	280	1.1	-5.2	2.0	11.7	-80.5	20.7	$	-44.7	$
16.	Diversified	12	1706	7.0	3.6	3.7	-4.1	6.9	-20.3	26.6	57.7	23.9
All companies
(Including others)		1034	24,379	100.0	8.7	8.0	4.6	11.5	-10.6	26.9	41.0	22.9
‘$’ Numerator negative.
‘#’ Denominator negative.
‘&’ Both numerator and denominator negative.

Within the engineering industry, iron and steel and allied product companies registered a rise in sales of 19.0 per cent, while automobile and ancillary companies reported a growth in sales of 21.8 per cent. Companies manufacturing electrical machinery posted sales growth of 6.4 per cent. Amongst chemical companies, pharmaceuticals and drugs companies performed better with their sales rising by 15.4 per cent in sharp contrast to the fall of 0.8 per cent in the sales of basic industrial chemical industry. Cement companies reported a rise in sales of 5.6 per cent, whereas sales of construction companies grew by 17.3 per cent during the first half of 2002-03. Information technology companies reported a growth of 18.6 per cent in sales while sales of diversified companies went up by 3.6 per cent during the first half of 2002-03. Industries like sugar (30.7 per cent), food processing (13.5 per cent) and rubber and rubber products (11.8 per cent) performed better in terms of sales; hotel industry witnessed a fall in sales of 5.2 per cent respectively.

Companies in chemicals, diversified, textiles, rubber and rubber products and food processing industries witnessed considerable fall in interest payments to the extent of 15.4 per cent, 20.3 per cent, 29.9 per cent, 17.0 per cent and 16.5 per cent respectively.

Post-tax profits of engineering companies posted a substantial increase of 188.1 per cent mostly due to the growth of 168.6 and 61.9 per cent of automobiles and ancillaries companies and electrical machinery companies respectively. Profits after tax of chemical industry moved up by 11.1 per cent despite a steep fall of 56.9 per cent in the post-tax profits of basic industrial chemical companies. On the other hand, pharmaceutical companies registered a rise of 32.0 per cent. Post-tax profits of information technology companies during the period under review remained practically unchanged (fall of 0.5 per cent). Industries during first half of 2002-03 registering a fall in post-tax profits included cement (60.3 per cent), tea (13.1 per cent), construction (15.0 per cent), trading (11.4 per cent) and electricity generation and supply (7.7 per cent).

The interest burden, represented by the share of interest payments in gross profits during the period under review varied considerably across the industries (Table 6). Interest burden continued to be above 50 per cent for industries like iron and steel and allied products (62.0 per cent), textiles (57.8 per cent), electrical machinery (52.9 per cent), basic industrial chemicals (70.8 per cent), cement (70.5 per cent), construction (67.5), textiles (57.8 per cent), sugar (179.0 per cent), paper and paper products (52.3 per cent) and trading (51.1 per cent). In respect of industries like food processing, tea, pharmaceuticals and drugs, it was moderate being in the range of 10 per cent to 30 per cent; for information technology companies, it was as low as 3.2 per cent.

Interest cost of sales for chemical industry was relatively low at 3.3 per cent in the first half of 2002-03 (4.0 per cent in the H1: 2001-02) but for the engineering industry it was at 4.5 per cent. Industries, which reported relatively higher level of interest cost of sales, were iron and steel and allied products (7.5 per cent), cement (6.2 per cent), paper and paper products (5.9 per cent), electricity generation and supply (8.5 per cent), tea (5.5 per cent) and hotels (10.5 per cent). On the other hand, industries like pharmaceuticals and drugs (2.0 per cent), automobiles and ancillaries (1.7 per cent), food processing (0.9 per cent) and information technology (0.7 per cent) showed lower interest cost of sales in the half-year ended September 2002.

Effective tax rate increased considerably for chemicals, cement, electricity generation and supply and paper and paper products, but declined substantially in the case of engineering industry during the first half of the 2002-03, as compared with that in the first half of the previous year.

Table 6: Industry-wise Profit Allocation and Profitability Ratios, First Half of 2001-02 and 2002-03
												(Per cent)
Industry/		Profit allocation and other ratios								Profitability ratios
Industry group		Tax provision to Profits before tax		Interest to Gross profits		Interest coverage ratio (number)		Interest to Sales		Gross profits to Sales		Profit after tax to Sales
		2001- 02	2002- 03	2001- 02	2002- 03	2001- 02	2002- 03	2001- 02	2002- 03	2001- 02	2002- 03	2001- 02	2002- 03
1		2	3	4	5	6	7	8	9	10	11	12	13
1.	Engineering	50.2	34.2	65.8	46.4	1.5	2.2	5.2	4.5	7.9	9.6	1.4	3.4
	Of which:
	i) Iron and steel and
	allied products	#	22.1	110.6	62.0	0.9	1.6	8.8	7.5	7.9	12.2	-1.2	3.6
	ii) Automobiles and
	ancillaries	39.0	31.4	40.2	17.8	2.5	5.6	2.7	1.7	6.7	9.6	2.4	5.4
	iii) Electrical machinery	32.5	30.4	61.4	52.9	1.6	1.9	4.5	4.7	7.4	8.9	1.9	2.9
	iv) Other machinery	#	#	223.7	189.4	0.4	0.5	10.4	10.3	4.7	5.4	-7.1	-6.4
2.	Chemicals	20.8	26.6	31.4	24.4	3.2	4.1	4.0	3.3	12.8	13.5	7.0	7.5
	Of which:
	i) Basic industrial
	chemicals	36.5	70.2	72.0	70.8	1.4	1.4	6.5	5.7	9.1	8.0	1.6	0.7
	ii) Pharmaceuticals
	and drugs	16.5	20.3	17.7	11.1	5.6	9.0	2.9	2.0	16.4	18.2	11.3	12.9
3.	Cement	14.5	30.3	54.3	70.5	1.8	1.4	6.7	6.2	12.4	8.9	4.9	1.8
4.	Electricity generation
	and supply	24.5	31.4	45.8	45.8	2.2	2.2	9.5	8.5	20.7	18.6	8.5	6.9
5.	Construction	23.9	23.9	63.3	67.5	1.6	1.5	5.9	5.2	9.4	7.7	2.6	1.9
6.	Textiles	#	19.8	121.0	57.8	0.8	1.7	6.7	4.6	5.5	7.9	-1.5	2.7
7.	Tea	24.3	18.4	20.4	29.7	4.9	3.4	4.3	5.5	20.9	18.5	12.6	10.6
8.	Sugar	16.4	#	63.9	179.0	1.6	0.6	5.6	4.0	8.8	2.2	2.7	-2.0
9.	Food processing	28.9	30.6	15.4	12.4	6.5	8.1	1.3	0.9	8.3	7.6	5.0	4.6
10.	Rubber and
	rubber products	#	28.5	119.5	49.2	0.8	2.0	5.1	3.8	4.3	7.7	-1.1	2.8
11.	Paper and paper
	products	19.5	27.5	58.0	52.3	1.7	1.9	6.5	5.9	11.2	11.4	3.8	3.9
12.	Plastic products	23.5	23.6	56.8	35.5	1.8	2.8	6.4	5.2	11.2	14.5	3.7	7.2
13.	Information
	technology	9.6	12.8	3.4	3.2	29.4	31.3	0.9	0.7	27.0	23.4	23.6	19.8
14.	Trading	16.4	23.8	53.0	51.1	1.9	2.0	3.3	2.7	6.2	5.3	2.4	2.0
15.	Hotels	3.8	#	30.5	188.3	3.3	0.5	8.3	10.5	27.1	5.6	18.1	7.1
16.	Diversified	8.1	10.1	42.1	31.4	2.4	3.2	4.7	3.6	11.2	11.5	6.0	6.0
	All companies	21.8	24.2	41.0	32.8	2.4	3.0	4.7	3.9	11.6	11.9	5.3	6.0
	(including others)
‘#’	Denominator negative.