Profit margin on sales (ratio of gross profits to sales) of engineering companies rose by 1.7 percentage points to 9.6 per cent during the first half of 2002-03 whereas for chemical companies, this ratio was marginally higher at 13.5 per cent (12.8 per cent in H1: 2001-02). Companies in pharmaceuticals and drugs (18.2 per cent), electricity generation and supply (18.6 per cent), tea (18.5 per cent) and information technology (23.4 per cent) industries reported profit margin more than 15 per cent of sales. Industries for which margin on sales declined by over 2.0 percentage points during the half-year ended September 2002 were sugar (2.2 per cent), tea (18.5 per cent), hotels (5.6 per cent) and cement (8.9 per cent) and electricity generation and supply (18.6 per cent).

Return on sales of engineering companies stood higher at 3.4 per cent during the period under review as compared with 1.4 per cent in the corresponding period of the previous year. For chemical companies, return on sales improved to 7.5 per cent in H1: 2002-03 from 7.0 per cent in the same period of the preceding year.

Overall Performance during the First Two Quarters of 2002-03

The performance of the private corporate sector in terms of growth in sales showed an uptrend over the first two quarters of 2002-03. Sales of selected 1,214 companies in Q2: 2002-03 rose by 9.6 per cent as compared with the rise of 7.6 per cent recorded by 1,236 companies in Q1: 2002-03 (Table 7). Total expenditure rose at lower rate of 9.2 per cent than sales (9.6 per cent) in the second quarter of 2002-03 whereas in the first quarter growth in total expenditure of 7.6 per cent was same as that of sales growth. Overall, the expenditure growth seemed to be under control in the first two quarters of 2002-03.

Table 7 : Growth Rates of Sales and Expenditure Over the Quarters
						(Per cent)
Item	Q1 (Apr.-Jun.)		Q2 (Jul.-Sept.)		H1 (Apr.-Sept.)
	2001-02	2002-03	2001-02	2002-03	2001-02	2002-03
Number of
Companies	1372	1236	1257	1214	1209	1034
Sales	7.4	7.6	-0.8	9.6	3.2	8.7
Total expenditure	6.8	7.6	-0.8	9.2	2.9	8.0

Gross profits registered a higher rise of 9.4 per cent in Q2: 2002-03 as compared with an increase of 8.5 per cent in Q1: 2002-03 (Table 8). Interest payments continued to decline by 9.5 per cent in the second quarter of 2002-03 after registering a fall of 8.2 per cent in the first quarter of 2002-03. Post-tax profits registered a higher rise of 18.7 per cent in the second quarter as against the growth of 17.9 per cent in the first quarter of 2002-03.

Table 8 : Growth Rates of Profits and Interest Payments Over the Quarters
						(Per cent)
Item	Q1 (Apr.-Jun.)		Q2 (Jul.-Sept.)		H1 (Apr.-Sept.)
	2001-02	2002-03	2001-02	2002-03	2001-02	2002-03
Number of
companies	1372	1236	1257	1214	1209	1034
Gross Profits	5.5	8.5	3.0	9.4	3.5	11.5
Interest	5.6	-8.2	-0.1	-9.5	1.0	-10.6
Profits after tax	4.6	17.9	2.8	18.7	4.1	22.9

Interest cost of sales in Q2: 2002-03 was lower at 4.0 per cent as compared to 4.3 per cent in the first quarter of 2002-03 (Table 9). The interest burden eased from 38.6 per cent in the first quarter to 34.5 per cent in the second quarter. Correspondingly, interest coverage ratio improved to 2.9 in Q2: 2002-03 from 2.6 in Q1: 2002-03.

Table 9 : Select Interest Linked Ratios Over the Quarters
				(Per cent)
Ratio	Year	Q1	Q2	H1
		(Apr.-Jun.)	(Jul.-Sept.)	(Apr.-Sept.)
Interest to	2002-03	38.6	34.5	32.8
Gross profits	2001-02	45.5	41.7	41.0
Interest to sales	2002-03	4.3	4.0	3.9
	2001-02	5.1	4.9	4.7
Interest to expenditure	2002-03	4.6	4.2	4.1
	2001-02	5.3	5.0	4.9
Interest coverage	2002-03	2.6	2.9	3.0
ratio (number)	2001-02	2.2	2.4	2.4

Margin on sales moved up from 11.2 per cent in the first quarter to 11.6 per cent in the second quarter of 2002-03 (Table 10). Likewise return on sales which was 5.2 per cent in Q1: 2002-03 improved to 5.7 per cent in Q2: 2002-03.

Table 10 : Profitability Ratios Over the Quarters
				(Per cent)
Ratio	Year	Q1	Q2	H1
		(Apr.-Jun.)	(Jul.-Sept.)	(Apr.-Sept.)
Gross profits to	2002-03	11.2	11.6	11.9
Sales	2001-02	11.1	11.7	11.6
Post-tax profits to	2002-03	5.2	5.7	6.0
Sales	2001-02	4.8	5.3	5.3

Industry-wise Performance during the First Two Quarters of 2002-03

Sales of companies belonging to engineering, cement, textiles, information technology and diversified industries recorded higher growth in sales in Q2: 2002-03 as compared to Q1: 2002-03 (Table 11).

Table 11 : Industry-wise Growth Rates During 2002-03
															(Per cent)
Industry /Industry		Number of			Sales			Total			Gross profits			Profits after tax
group		companies						Expenditure
		Q1	Q2	H1	Q1	Q2	H1	Q1	Q2	H1	Q1	Q2	H1	Q1	Q2	H1
	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16
1.	Engineering	323	320	282	11.4	15.3	14.7	10.4	12.8	12.5	21.2	43.0	38.9	116.3	163.0	188.1
2.	Chemicals	228	236	207	4.5	0.8	3.5	2.3	1.0	2.4	16.8	-0.4	8.9	28.2	-0.6	11.1
3.	Cement	25	28	24	-3.6	7.0	5.6	2.6	11.1	8.9	-40.2	-36.8	-24.6	-92.9	+	-60.3
4.	Electricity generation
	and supply	8	6	6	11.7	11.8	12.8	11.3	5.3	8.3	6.4	-0.5	1.7	17.9	-22.0	-7.7
5.	Construction	17	26	19	11.5	10.5	17.3	12.3	14.3	20.0	-10.2	-28.1	-4.1	-31.3	-70.1	-15.0
6.	Textiles	136	120	103	0.5	8.7	2.2	-3.0	7.8	-0.4	59.4	23.0	46.7	#	#	#
7.	Information
	technology	62	56	48	14.8	19.6	18.6	18.6	24.0	23.4	1.7	3.6	2.9	-2.1	-0.2	-0.5
8.	Diversified	11	11	12	2.8	8.0	3.6	3.4	7.6	3.7	0.2	13.4	6.9	7.0	34.8	23.9
	All companies
	(including others)	1236	1214	1034	7.6	9.6	8.7	7.6	9.2	8.0	8.5	9.4	11.5	17.9	18.7	22.9
‘#’ Denominator negative.
‘+’ Numerator negative.

In particular, sales of engineering industry rose by 15.3 per cent in the second quarter of 2002-03 as compared with rise of 11.4 per cent in the first quarter. Cement companies registered 7.0 per cent growth in sales in contrast to a fall of 3.6 per cent in the first quarter of 2002-03. Chemical industries witnessed lower growth in sales with growth rate falling from 4.5 per cent in Q1: 2002-03 to 0.8 per cent in Q2: 2002-03.

Engineering industry registered a steep rise in their post-tax profits in the first two quarters; after-tax profits rose by as much as 116.3 per cent in Q1: 2002-03 and 163.0 per cent in Q2: 2002-03. On the contrary, chemical companies which posted a growth of 28.2 per cent in Q1: 2002-03 registered a decline of 0.6 percent in the post-tax profits in Q2: 2002-03. Post-tax profits of information technology companies declined by 2.1 per cent and 0.2 per cent in first two quarters of 2002-03.

Interest cost of sales for engineering companies declined to 4.3 per cent in Q2: 2002-03 from 5.2 per cent in Q1: 2002-03 (Table 12). Likewise, for chemical companies interest cost of sales dropped to 3.4 per cent in Q2: 2002-03 (3.8 per cent in Q1: 2002-03).

Table 12: Industry-wise Interest Linked Ratios
								(Per cent)
	Industry /	Year	Interest to Gross profits			Interest to Sales
	Industry group		Q1	Q2	H1	Q1	Q2	H1
	1	2	3	4	5	6	7	8
1.	Engineering	2002-03	58.9	41.8	46.4	5.2	4.3	4.5
		2001-02	71.2	61.2	65.8	5.8	5.1	5.2
2.	Chemicals	2002-03	27.6	25.7	24.4	3.8	3.4	3.3
		2001-02	37.8	30.8	31.4	4.7	4.1	4.0
3.	Cement	2002-03	87.0	128.0	70.5	8.6	7.7	6.2
		2001-02	51.0	82.7	54.3	8.1	8.4	6.7
4.	Electricity generation and supply	2002-03	54.3	41.8	45.8	10.3	7.9	8.5
		2001-02	56.3	42.2	45.8	11.2	9.0	9.5
5.	Construction	2002-03	54.6	80.2	67.5	3.3	7.0	5.2
		2001-02	42.1	53.3	63.3	3.2	7.1	5.9
6.	Textiles	2002-03	59.5	60.9	57.8	5.0	4.4	4.6
		2001-02	124.3	97.0	121.0	6.6	6.2	6.7
7.	Information Technology	2002-03	3.6	3.3	3.2	0.8	0.7	0.7
		2001-02	4.3	3.1	3.4	1.1	0.8	0.9
8.	Diversified	2002-03	29.6	30.2	31.4	3.7	3.6	3.6
		2001-02	36.0	42.9	42.1	4.6	4.8	4.7
	All companies	2002-03	38.6	34.5	32.8	4.3	4.0	3.9
		2001-02	45.5	41.7	41.0	5.1	4.9	4.7

Share of interest payments in gross profits - interest burden - for engineering industry decreased from 58.9 per cent in Q1: 2002-03 to 41.8 per cent in Q2: 2002-03. In respect of chemical industry, interest burden eased by about 2 percentage points from 27.6 per cent in Q1: 2002-03 to 25.7 per cent in Q2: 2002-03.

Profit margin on sales of engineering companies increased to 10.3 per cent in the second quarter of 2002-03 (Table 13) as compared to 8.8 per cent recorded in the first quarter of 2002-03. Profit margin of chemical companies dropped to 13.2 per cent in Q2: 2002-03 from 13.9 per cent in Q1: 2002-03. Cement companies recorded a fall in the profit margin from 9.9 per cent in Q1: 2002-03 to 6.0 per cent in Q2: 2002-03.

Return on sales of chemical companies decreased from 7.4 per cent in Q1: 2002-03 to 7.1 per cent in Q2: 2002-03. Engineering companies witnessed return on sales from 2.0 per cent in the first quarter to 4.2 per cent in the second quarter of 2002-03. Return on sales of information technology companies came down from 19.2 per cent in Q1: 2002-03 to 18.7 per cent in Q2: 2002-03.

Table 13: Industry-wise Profitability Ratios
								(Per cent)
	Industry /	Year	Gross profits to Sales			Post-tax profits to Sales
	Industry group		Q1	Q2	H1	Q1	Q2	H1
	1	2	3	4	5	6	7	8
1.	Engineering	2002-03	8.8	10.3	9.6	2.0	4.2	3.4
		2001-02	8.1	8.3	7.9	1.1	1.8	1.4
2.	Chemicals	2002-03	13.9	13.2	13.5	7.4	7.1	7.5
		2001-02	12.5	13.3	12.8	6.1	7.2	7.0
3.	Cement	2002-03	9.9	6.0	8.9	0.5	-2.4	1.8
		2001-02	15.9	10.2	12.4	7.1	1.2	4.9
4.	Electricity generation and supply	2002-03	19.0	18.9	18.6	6.7	6.7	6.9
		2001-02	19.9	21.3	20.7	6.3	9.6	8.5
5.	Construction	2002-03	6.1	8.7	7.7	2.1	1.3	1.9
		2001-02	7.5	13.4	9.4	3.5	4.7	2.6
6.	Textiles	2002-03	8.5	7.2	7.9	3.0	2.1	2.7
		2001-02	5.3	6.3	5.5	-1.5	-0.3	-1.5
7.	Information Technology	2002-03	22.9	22.4	23.4	19.2	18.7	19.8
		2001-02	25.8	25.8	27.0	22.5	22.4	23.6
8.	Diversified	2002-03	12.4	11.8	11.5	7.8	7.5	7.0
		2001-02	12.7	11.3	11.2	7.5	6.0	6.0
	All companies	2002-03	11.2	11.6	11.9	5.2	5.7	6.0
		2001-02	11.1	11.7	11.6	4.8	5.3	5.3

Major Components of Expenditure

An attempt is made here to review the trends in the major components of expenditure viz., consumption of raw materials, staff cost and also change in the stock-in-trade. It may be mentioned that the data presented here relate to the companies reporting these items.

Consumption of Raw Materials

Consumption of raw materials of 898 reporting companies during the first half of 2002-03 rose by 11.3 per cent but their total expenditure were up at a lower rate of 8.1 per cent (Table 14). The share of consumption of raw materials in total expenditure increased by 1.7 percentage points to 58.3 per cent during the first half of 2002-03.

Consumption of raw materials during Q2: 2002-03 showed an increase of 14.2 per cent as against a rise of 10.4 per cent in Q1: 2002-03. The proportion of consumption of raw materials in total expenditure decreased from 61.5 per cent in Q1: 2002-03 to 58.3 per cent in Q2: 2002-03.

Staff Cost

During the half-year ended September 2002, 975 reporting companies showed a rise of 7.3 per cent in the staff cost while their total expenditure increased at a higher rate of 7.7 per cent (Table 15). The share of staff cost in total expenditure remained stable at 8.1 per cent during the first half of 2002-03. The personnel cost recorded a fall of 2.9 per cent in Q2: 2002-03 in contrast with a growth of 6.0 per cent observed in Q1: 2002-03. The share of staff cost in the total expenditure went up from 7.5 per cent in Q1: 2002-03 to 7.9 per cent in Q2: 2002-03.

Change in Stock-in-Trade

Change in stock-in-trade reported by 875 companies showed an accumulation of stocks of tradable goods (Rs.1,775 crore) of the order of 1.1 per cent of sales in the first half of 2002-03 (Table 16).

Table 14: Consumption of Raw Materials Over the Quarters
					(Amount in Rs. crore)
	Q1		Q2		H1
Item	2001-02	2002-03	2001-02	2002-03	2001-02	2002-03
1	2	3	4	5	6	7
No. of companies reporting	1,034		1,015		898
Consumption of raw
material (CRM)	45,025	49,733	40,292	45,987	77,331	86,105
(Per cent change)		(10.4)		(14.2)		(11.3)
Total expenditure	75,109	80,896	72,050	78,909	1,36,521	1,47,602
(Per cent change)		(7.7)		(9.5)		(8.1)
CRM as percentage of total
expenditure	60.0	61.5	55.9	58.3	56.6	58.3

Table 15: Staff Cost Over the Quarters
					(Amount in Rs. crore)
	Q1		Q2		H1
Item	2001-02	2002-03	2001-02	2002-03	2001-02	2002-03
1	2	3	4	5	6	7
Number of companies	1,159		1,139		975
reporting
Staff cost	5,927	6,283	6,763	6,568	11,438	12,269
(Per cent change)		(6.0)		(-2.9)		(7.3)
Total expenditure	78,226	83,911	75,966	82,775	1,41,335	1,52,238
(Per cent change)		(7.3)		(9.0)		(7.7)
Staff cost as percentage	7.6	7.5	8.9	7.9	8.1	8.1
of total expenditure

In Q2: 2002-03, accumulation of stock-in-trade was negligible for the companies reporting this item, in contrast with the increase in stock-in-trade of the order of 2.0 per cent of the sales observed in the first quarter.

Table 16: Increase in Stock-in-Trade Over the Quarters
					(Amount in Rs. crore)
	Q1		Q2		H1
Item	2001-02	2002-03	2001-02	2002-03	2001-02	2002-03
1	2	3	4	5	6	7
Number of companies	1,037		1,006		875
reporting
Change in stock-in-trade	1,124	1,778	-354	43	379	1,775
Sales	84,526	90,840	80,937	88,731	1,52,116	1,64,943
Change in stock-in-trade	1.3	2.0	-0.4	0.0	0.2	1.1
as percentage of sales

---

* Prepared in the Corporate Studies Division of the Department of Statistical Analysis and Computer Services.

1 The previous study on ‘Performance of Private Corporate Business Sector during First Half of 2001-02’ was published in the March 2002 issue of the Reserve Bank of India Bulletin.