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Other income spurs engineering bottomline

Aug 3, 2000

The quarter ended June 30, 2000 is a mixed dose for engineering companies. The collated quarterly performance of some of India's top engineering companies has shown an encouraging jump of 112% in net profits (compared to the corresponding quarter in June, 1999). But the turnover during the quarter logged in a minor decline.

(Rs m) Jun-99 Jun-00 Change
Sales 7,259 7,221 -0.5%
Other Income 218 391 79.6%
Expenditure 6,451 6,551 1.5%
Operating Profit (EBDIT) 808 670 -17.0%
Operating Profit Margin (%) 11.1% 9.3%
Interest 104 40 -61.9%
Depreciation 230 233 1.3%
Profit before Tax 705 810 14.8%
Other Adjustments -28 389
Tax 208 202 -2.9%
Profit after Tax/(Loss) 469 997 112.4%
Net profit margin (%) 6.5% 8.4%
*Sample incudes: Alfa Laval, Ingersoll Rand, Grindwell Norton, Wartsila NSD,
Siemens, Cummins and Sandvik Asia

An 80% jump in other income is largely responsible for the sharp jump in bottomline despite the decline in turnover. In the current quarter, the sector was also helped by a whopping Rs 389 m, which came in as extraordinary income. On the positive side, there are signs of financial restructuring in the sector. This is indicated by a significant 62% decline in interest costs. This restructuring has also contributed to the spurt in bottomline.

The worrying aspect continues to be the stagnant topline and the resultant decline in operating margins. This is a sign of difficult market conditions, which has put pressure on margins. If this trend continues, the engineering sector could be in for rough times both financially as well as on the bourses.

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