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India Inc: Growth mode

Jul 18, 2003

FY03 has widely been hailed as a good year for India Inc. We dug up data on our own Quantum Universe of 350 companies to further give credence to this fact. Currently, this universe represents over 90% of BSE market capitalization. This is what we found.

(Rs m) FY02 FY03 % Change
Net Sales 6,994,042 7,367,328 5.3%
Net Profit 512,141 635,514 24.1%
Gross Profit 1,454,534 1,705,728 17.3%
Gross Profit Margin 20.8% 23.2%  

In the table above, we see that while the Universe topline has grown by 5%, the bottomline has gone up by a healthy 24% over the previous year. This clearly indicates that even though globally 2002 was not a year to remember, India Inc. continued to show a healthy growth rate. Even at the gross profit level the group has done well over the previous period, indicating that operationally too, India Inc. had continued to tread the path of efficiency.

The government has also done its fair bit in giving a boost to the economy. During the Union Budget – 2003, the government took key initiatives like infrastructure development, power reforms and securitisation bill which saw fortunes turning for sectors like steel, cement and power. Apart from this, decrease in interest rates also saw debt restructuring and consequently, loss making manufacturing companies posting profits (steel companies in particular). Banks too have seen an upturn in their retail portfolio owing to the interest rate windfall. The Securitisation Act is likely to further strengthen the sector’s investment abilities.

All this bodes well for the current year too. As per the CMIE, The GDP is also expected to grow at a healthy 6.5% during FY04, as against 5.6% in the previous year. Apart from this, the country is also witnessing near normal rainfall, which has been confirmed by the Indian Metrological department (IMD). Normal rains means that the agricultural sector would have a better year as compared to the recent lacklustre years.

The markets have also responded well to the commendable performance of India Inc., as a result of which the Sensex is currently trading at a P/E multiple of 13.2x FY03 earnings. Even if the Sensex stocks clock an average 15% bottomline growth, forward P/E stands at 11.5x. In this light, it does look that this time around, there is a fundamental reason behind this bullish tone. Given the fact that the environment looks conducive for growth, investing in India Inc. should prove to be fruitful in the long run.

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