Brand owners face obstacles in India

06 June 2012

NEW DELHI: Brand owners in India are facing several challenges to maintaining their historical growth rates, a report has warned.

The Economic Times, the daily newspaper, assessed the performance of 2,302 listed companies – excluding finance and petroleum firms - and found their collective revenues rose by 13.5% in the first quarter of 2012.

Such a total marked a slowdown from the 19.3% expansion logged during the closing three months of last year, and lagged behind the 17.8% uptick registered in the third quarter of 2011.

Among the primary factors contributing to this deceleration in growth, the analysis suggested, were declining investment levels, rising input costs and policy inertia covering various key sectors.

Moreover, GDP growth stood at just 5.3% in India across the first quarter of this year, the worst figures in nine years, hit by low consumer spending and a falling demand for services.

Net profits for the featured companies also fell by 8% on an annual basis in Q1. More positively, totals on this metric had decreased by an even more substantial 20.6% in Q4 2012 and 37.9% in Q3 2012.

Operating profit margins for the March quarter reached 14.3%, bettering the last six months, but down by 200 basis points year on year.

Elsewhere, interest costs leapt by 47.4% to 30,123 crore rupees, or 3.5% of TOTAL revenues, in the same period, which constituted a record high. The strength of firms to service this debt, however, did improve.

FICCI, the industry body, recently issued a 12-point plan it believes the government must address to drive growth, including allowing foreign direct investment in multi-brand retail, like supermarkets, and rolling out a goods and services tax.

"India is in the midst of a grave economic crisis," R V Kanoria, the president of FICCI. "The combination of low growth, high inflation, high fiscal deficit and the highest ever trade account deficit has raised a lot of concern."

ASSOCHAM, another trade group, has also suggested that India's anticipated rate of GDP growth, pegged at roughly 6%, left it better placed than was the case in many other countries around the globe.

"The entire world economy is facing the headwinds and Indian economy is certainly not off limits," Rajkumar Dhoot, the president of ASSOCHAM, added.

Data sourced from Economic Times; additional content by Warc staff