Corporate Sales Chart 7% Growth in Quarter ended December 2012

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CEIC India Data Talk: Private corporations have demonstrated sustained growth in their overall finances, according to the recent survey of the trading performance of non-financial, non-government (NGNF) corporations conducted by the Reserve Bank of India (the central bank). However, the survey also highlights several areas of concern, with regards to the sector’s performance ratios. The survey, conducted for the quarter ended December 2012 (corresponding to the third quarter of fiscal year 2012-13), is compiled based on the responses of a sample of 2,745 NGNF corporations. According to the survey, sales growth has remained positive, though year-on-year growth rates have decelerated from the double-digit pace observed during the quarter ended December 2009 to the quarter ended March 2012. The ratio of earnings before interest and taxation as a proportion of sales (the EBIT-to-sales ratio) declined to approximately 11.20% in the quarter ended December 2012 from 12.70% during the previous quarter (though it was unchanged from the same quarter of the previous year). Likewise, the profit-after-tax to sales ratio declined to 5.7% from 6.9% during the previous quarter (or 7.0% during the same quarter of the previous year), reflecting pressure on profit margins. At the same time, relatively high growth in interest payments relative to the growth in sales suggests increasing leverage over the years. This is also reflected in the interest coverage ratios which have largely deteriorated recently. The interest coverage ratio declined to 2.9% during the quarter ended December 2012 from 3.5% during the quarter ended September 2012 (which was also the same figure for the year earlier period). This may be a cause for concern given tightening economic conditions, both locally and globally. Higher provision for depreciation over the years also stands out among the financial performance statistics, suggesting rising fixed asset acquisition. Depreciation provision per company rose to an average of INR 95.08 million during the quarter ended December 2012 compared to INR 90.58 million during the previous quarter or INR 86.08 million during the same quarter of the previous year. However, while the survey does provide a reasonable overview of the overall financial performance of NGNF corporations, the lack of standardisation in financial reporting methodologies means that the results of the survey should largely be seen as a supportive rather than a conclusive indication of their overall financial performance. For example, the inclusion of large extraordinary income and expense components (i.e. non-operating profit or loss) in the computation of net profits, along with the different accounting treatment of interest expenses (i.e. whether or not to distinguish between interest and principal components), may somewhat distort the ratios. Despite its shortcomings and inconsistencies, the relatively large sample and the tendency of these inconsistencies to diminish over time mean that the survey still serves as a respectable barometer for private corporation performances over time, especially in tandem with other similar indicators, such as comparable business expectations surveys and forecasts. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. By Chan Yee Lui - CEIC Analyst Back to Blog

7th June 2013 Corporate Sales Chart 7% Growth in Quarter ended December 2012

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