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Decimal Digest
06 Feb 2012

Indian Corporate Sector: Loss of pricing power?

Recently, the Reserve Bank of India (RBI) published an interesting study on the first half (April-Sept 2011) performance of the Indian corporate sector, covering 2,207 Indian companies.

The table below shows the YOY change in key performance parameters for these companies, segregated by broad industry grouping.

The key point to note is that the Indian IT Services sector derives most of its income from the developed world, while manufacturing and other services sectors derive most of their income from the domestic market.

Though the manufacturing sector witnessed a healthy 22.2% topline growth during the period, it saw compression in margins, with PAT showing a degrowth of 3.5%. The rise in interest costs, raw material costs and fuel costs have hurt the financial performance of this sector.

On the other hand, in spite of constant narrative of continued macro pressures in most of the developed world, the Indian IT services sector has been able to show a respectable 20.7% revenue growth. There have been margin pressures, though lower than in other sectors, with PBIDT rising by just above 12%. With the raw material and fuel cost inflation outstripping pressure from the labour market, these companies have felt a lower negative impact on their margins. The PAT growth for this sector was aided by a big boost to Other Income, though surprisingly Interest costs have shot up.

The worst performing sector in this period was services other that IT sector, where sales grew only 15.7% and the PAT fell by 25.1%.

Indeed, one may attribute the causes for this scenario to continued domestic inflation, and companies not being able to pass on the cost increases due to competitive pressures.


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