Q1 numbers show revenues, profits growing faster

Raw material costs seen easing as global demand for commodities weakens.

Raw material costs for India Inc are beginning to ease, if the initial set of earnings numbers for the first quarter of the current financial year is any indication.

The pace of growth in revenues and profits appears to be picking up, going by the numbers reported by over 300 companies.

Banks and financial institutions have been excluded while drawing up this picture.

Raw material costs for companies had been on an upswing from late 2009 on the back of rising commodity prices. However, with China intent on cooling its economy and the European crisis unfolding, the global demand scenario for commodities has weakened. This has resulted in the prices of key inputs such as steel and base metals either flattening out or correcting.

The quarter under review saw a 13 per cent decline in raw material spends of the 300 companies over the March ‘10 quarter. Raw material costs took away 30 per cent of sales in the June quarter compared with 34 per cent in the March quarter.

The base effect showed up with input costs still 28 per cent higher than last year levels. However, taking into account the movement of raw material quarter over quarter, cost pressure appears to be easing.

Other components such as staff costs, administration expenses and power costs also saw sizable increases this quarter. Costs of power and fuel, for instance, increased 23 per cent, having declined 15 per cent in the June 2009 quarter.

While such increases may seem rather hefty, as a percentage of sales, these costs have remained the same. Operating margins, therefore, are unlikely to come under pressure as a result of overhead increases. The same goes for interest costs.

While increasing 22 per cent in the June quarter, interest costs have remained at 1.6 per cent of sales, allowing for stable net margins.

Revenue growth

The biggest good news from the initial numbers comes from sales. Net profits (adjusted) clocked a 19 per cent growth in the June ‘10 quarter against the 17 per cent growth in the June ‘09 quarter.

This time around, though, profit growth appears to be spurred by a growth in sales rather than a drop in costs, as was the case in June ‘09. Revenues registered a healthy 20 per cent growth (9.5 per cent).

Operating and net margins have remained more or less the same at 21 per cent and 14 per cent respectively.