Nifty cos: Bolstered by other income

Sowmya Krishnan

DESPITE a flat topline, a generous helping from 'other income' and lower interest costs shored up the earnings for the 50 companies comprising the S&P CNX Nifty for the July-September 2001 quarter.

'Other income' rose 24.4 per cent and interest costs (excluding finance companies) fell 8.8 per cent for the quarter ended September 2001 compared to the corresponding previous period. Together, they propped up the aggregate gross profit by 15.12 per cent. `Other income', as a percentage of gross profits, rose from 23.6 per cent to 25.5 per cent.

The earnings for companies, especially in the FMCG sector, were largely exaggerated by 'other income'.

But for this, it would have been difficult for many, including Hindustan Lever, to report growth in bottomline considering that sales remained almost flat. A few other companies that registered a decent bottomline backed by income from non-core activities were Asian Paints, Bajaj Auto, Hero Honda and Tata Power. A huge jump in other income for State Bank of India, Reliance Industries and Reliance Petroleum also perked up the aggregate figure.

The increase in the 'other income' for the three companies put together is around Rs 239.6 crore. If this is excluded, the net increase in 'other income' for all other companies in the Nifty universe would have been only 12.8 per cent.

Interest costs is where Corporate India achieved some success in checking outgo, helped by a generous dose of interest rate cuts. Corporate India has definitely benefited from the lower interest rate regime. Lower interest outgo has resulted in cost savings of Rs 134 crore. Interest costs, as a percentage of sales, also declined to 2 per cent from 2.76 per cent in the corresponding previous quarter.

Many companies have reduced cost of funds by replacing high-cost debt with low-cost debt.

Aggressive debt restructuring, prudent working capital management and inventory control resulted in better utilisation of funds and maintaining a tight rein on interest outgo. In particular, cement and refining companies were the major beneficiaries on this front.

The total interest savings for the top four cement companies (including diversified ones such as Grasim and Larsen and Toubro, and ACC and Gujarat Ambuja Cements, which are pure cement plays) was around Rs 39.73 crore (Rs 134.13 crore for all Nifty companies).

Reliance Industries and Reliance Petroleum registered steep decline in interest payments.

The total decline in interest payments was around Rs 116 crore.

Ignoring the interest savings of these two companies, interest costs for other companies would have declined only by 1.8 per cent.

A jump in income from non-core activities and a slump in interest costs have together added around Rs 636.89 crore to the Nifty basket's aggregate bottomline.

But for this support, the gross profit growth would have been only 7.8 per cent instead of the reported 15 per cent.

The factor that causes concern is that the other income growth may not be sustainable and savings in interest costs may be limited as further cut in interest rates may not be as significant as in the last two years.