Business Standard ......... BS1000

A turnaround year

106 BS giants posted sales of over Rs 1,000 crore, up from 101 in 2001-2002 and 82 in 1998-1999

Sales and profits are sharply up. The recovery charge, however,
has been led by state-owned enterprises

It was the year of the great turnaround in corporate India, when sales and profits rebounded after years of stagnation. The BS 1000 companies reflect this dramatic change, with net sales surging 13.32 per cent and net profits growing by a huge 54.10 per cent in 2002-2003. Contrast this with the previous year, when net sales went up by a mere 2.6 per cent and net profits plunged by 4.1 per cent.

BS 1000 companies in FY03: a bird's-eye view

Net sales increased by 13.3 per cent

Gross sales up 13.4 per cent

Operating profit rose by 22.2 per cent

Gross profit climbed 34.2 per cent

Net profit soared 54.1 per cent

Assets grew by 5.9 per cent

What were the reasons for this remarkable turnaround? An analysis of the financials of the BS 1000 companies shows that the rise in profits was on account of a sharp decline in interest rates, the higher prices realised in the oil and steel industries and some signs of increasing demand— the sales turnover of 410 BS giants rose sharply.

As a result, profit margins perked up all round. Operating profit margins moved up from 14.77 per cent in 2001-2002 to 15.86 per cent in 2002-2003. Gross margins rose from 10.80 per cent to 12.86 per cent. Even net margins rose from 4.62 per cent to 6.35 per cent.

To take the aggregate numbers first, the BS 1000 giants notched up total net sales of Rs 8,22,479 crore (Rs 8.22 trillion) in 2002-2003, up from Rs 7,24,476 (Rs 7.24 trillion) in 2001-2002. The combined net profits were Rs 52,228 crore against Rs 33,494 crore in 2001-2002. Cash profit for the year was higher at Rs 83,264 crore against Rs 62,569 crore in the previous year. While net profit rose by Rs 18,734 crore to Rs 52,228 crore, the interest cost of the BS 1000 giants declined Rs 3,783 crore (or by 12.39 per cent) to Rs 24,949 crore. Twelve sectors that turned around during the year added Rs 1,601 crore in net profit against a net loss of Rs 3,825 crore in the previous year. Refineries were star performers, adding Rs 9,730 crore in net profit on account of a 95 per cent rise in the industry’s net profit.

PSUs stack up quite nicely Growth rate in %
	PSUs (35)	Private (965)	BS (1000)
Net sales	17.29	10.77	13.32
Operating profit	45.29	12.79	23.55
Interest	-29.12	-8.28	-12.40
Taxation	74.33	38.99	58.28
Net profit	80.60	35.12	54.08
Dividend	92.02	-6.85	27.23
OPM %	15.12	16.16	15.89
GPM %	13.92	11.87	12.86
NPM %	7.69	5.49	6.35

India Inc’s powerpacked performance owed much, however, to public sector undertakings (PSUs). The 35 PSUs in the BS 1000 universe outperformed the other 965 private sector giants in both financial as well as stock market performance.

PSUs posted a rise in net sales of 17.29 per cent, while their profits growth rate was at a record high of 80.60 per cent. In contrast, the net sales of the private sector giants moved up at a much slower 10.77 per cent while their net profits rose by 35.12 per cent. That’s by no means all. PSUs were also well ahead in margins, showing a 250 basis points increase in all three profit margins – operating profit margin, gross profit margin and net profit margin. The margins of the private sector giants on the other hand showed a rise of only around 50-100 basis points.

Moreover, the shares of the PSUs in both net profits and net sales have been increasing. The 35 PSUs accounted for over 40 per cent of the net sales of the BS giants in 2002-2003, up from 38.9 per cent in 2001-2002. Their share of net profit was 48.9 per cent, up from 42.1 per cent in the previous year.

Part of the feel-good factor at the PSUs has trickled down to their shareholders, including, of course, the government. PSUs were big dividend payers, accounting for 52.1 per cent of the total dividend distributed by the BS 1000 firms. The dividend payout for PSUs rose by 39.7 per cent from 37.2 per cent in the preceding year. That’s very different from private firms, whose dividend payout tumbled to 34.9 per cent from 51.2 per cent in the preceding year.

As many as 410 BS giants (41 per cent of the sample) posted a sales growth of over 30 per cent, compared with an average sales growth rate of 13.44 per cent posted by the entire sample. Only 240 firms among the BS giants posted a drop in growth in net sales income. Other statistics to note: 220 firms had a net profit growth rate of over 55 per cent; 84 of the BS 1000 turned around during the year while 205 firms posted net losses in 2002-2003 and 2001-2002.

Although the recovery has been fairly broad-based, it didn’t really embrace all industries in 2002-2003. Thirty six of the 107 industries classified by the BS Research Bureau posted a sales growth of over 15 per cent. Only 13 sectors felt recessionary pressure and posted a drop in sales growth while 33 sectors showed single-digit growth in net sales turnover.

In terms of sales, the big movers were oil, steel, aluminium, pharmaceuticals, trading, and the automobile sectors, with sales growth of over 20 per cent. The happening sectors in 2001-2002 were pharmaceuticals, automobiles (two and three wheelers), cement, pesticides and food products.

Industries where sales growth dipped were cables, telecommunications, pesticides, shipping and diamond and jewellery. In 2001-2002, industries such as steel and steel products, consumer goods, telecommunications and petrochemicals posted a decline in sales.

During the year, net profit grew by over 50 per cent each in 26 industries while 64 industry segments recorded a growth in net profits. Twelve industries (steel, man made fibres, cotton textiles, non ferrous metals and organic chemicals) turned around while 12 other industries (domestic appliances, steel alloys, sponge iron, mini steel, ferro alloys, texturising and power cables) continued to be in the red.

So who were the creme de la creme of the BS 1000 in 2002-2003? Oil companies continue to rule the commanding heights of the Indian corporate sector. Indian Oil Corporation (IOC) remained the biggest revenue earner with net sales of over Rs 1 trillion (Rs 1,08,699 crore). Private sector giant Reliance Industries stood second in the sales ranking, with net sales of Rs 60,387 crore. In the net profit ranking, Oil and Natural Gas Corporation (ONGC) tops with its record net profit of Rs 10,529 crore. IOC is a distant second with a net profit of Rs 6,098 crore.

In terms of assets, Reliance Industries tops the list with total assets of Rs 63,784 crore. IOC comes next with an assets base of Rs 55,810 crore. Small wonder that all this has translated into massive market capitalisation, with ONGC topping the sweepstakes with a market capitalisation of Rs 1,19,443 crore. Reliance comes a tame second with a market cap of Rs 80,557 crore.

The number of companies with sales of over Rs 1,000 crore rose in 2002- 2003, with 106 BS giants posting sales of over Rs 1,000 crore, up from 101 in 2001-2002 and 82 in 1998-1999. Similarly, among assets, 133 companies in the BS 1000 list have assets of over Rs 1,000 crore compared to 114 in 2001-2002.

What is more, the booming stock markets saw the number of companies in the $1 billion plus market capitalisation club increasing to 46 from only 24 in 2001-2002.

Some of the increase in size has come about as a consequence of mergers and acquisitions activity. There was large scale consolidation among BS 1000 giants in 2002-2003. Twenty seven of the BS 1000 companies went in for M&As while the amalgamations of 40 other companies are yet to be completed.

Fourteen firms merged with other 14 BS 1000 companies, while nine of them acquired business divisions for synergy growth. Five of these giant firms demerged their units, either to group companies or to form a separate company to focus on core business activities. Eight promoters bought back their own shares from the open market to increase their stakes.

The major amalgamation proposals include Tata Chemicals-Hindustan Lever Chemicals, Pfizer-Parke Davis, KEC International-RPG Transmission, Wyeth Lederle-Geoffery Manners. The major merger was between Tata Steel and Tata SSL. The big acquisions by the BS giants during the fiscal year include Infosys Technologies acquiring intellectual property (IP) in a treasury product for its banking business unit; Jubilant Organosys acquiring the API business of Max India and Glenmark Pharma acquiring the bulk drugs manufacturing plant of GlaxoSmithKline Pharma.

Indo Gulf Corporation demerged its copper division in favour of its group company Hindalco and consolidated its fertiliser business. Indo Rama Synthetics de-merged its polyester and spun yarn businesses into two separate entities - Indo Rama Synthetics and Indo Rama Textiles. Excel Industries demerged its agri business into Excel Crop Care.

Expansion too was in the air. The BS top 1000 invested Rs 1,00,000 crore in plant and machinery in the last three years, averaging around Rs 35,000 crore each of the last three years. The 35 PSUs invested Rs 32,678 crore and 965 private giants purchased assets worth Rs 70,000 crore. Reliance Industries invested Rs 6,292 crore in fixed assets in the last three years, spending Rs 3,704 crore in 2002-2003. ONGC invested Rs 5,000 crore, Rs 2,000 crore of this in 2002-2003. Mahanagar Telephone Nigam and Bharat Petroleum bought fixed assets worth Rs 3,300 crore in the last three years.

Hindustan Petroleum Corporation (Rs 2,610 crore), Indian Oil (Rs 2,488 crore), National Aluminium and Gail (Rs 2,400 crore each), Hindalco (Rs 1,969 crore), Moser Baer India (Rs 1,762 crore) and Tata Steel (Rs 1,592 crore) were the other major asset builders in the last three years.

The stock market performance of the BS 1000 companies in 2002-2003 was in line with the market trend. The aggregate market capitalisation of these giants declined by 10 per cent, compared to a decline of 12 per cent in the BSE Sensex. However, with the current market boom, the BS giants too rebounded in 2003-2004 (between April 1, 2003 and January 13, 2004) and recorded a whopping 131 per cent rise in market capitalisation. Only 10 BS gaints posted a drop in share price growth while the stock prices of 649 giants appreciated by over 100 per cent.

While 2002-2003 marked a turnaround in the fortunes of India Inc, 2003-2004 has strengthened and broadened that recovery, leading to a sea-change in the confidence level of companies. Looking ahead, these years will probably be seen as that defining moment when India Inc came of age and strode ahead to take its rightful place in the global arena.

Although the recovery has been fairly broad-based, it didn't really embrace all industries