Proved more resilient during the slowdown

Promoters often fear that listing their business on the stock exchange cramps their style. The quarter-by-quarter scrutiny of numbers by the public, they feel, makes it difficult to build a long-term business.

But analysis shows that it pays to get your business listed. Listed companies have delivered much better sales and profit growth than their privately-held peers over the past seven years.

Not just this, they have also managed much higher margins and proved more hardy during the slowdown.

An analysis of the financials of listed and unlisted companies with an annual turnover in excess of Rs 500 crore between 2005 and 2012 reveals this. The collective revenues of the 763 listed companies grew at a healthy 18 per cent annually over this period. Unlisted companies (220 in number) managed a lower 14 per cent growth.

Operating profits for the listed universe grew at 13 per cent, thrice the rate of 3.8 per cent managed by unlisted companies. Though the profit margins for the entire universe fell over the seven-year period, the slippage was higher for the unlisted companies.

The margins of unlisted companies halved from 15.1 per cent in FY05 to 7.6 per cent in FY12. For the listed companies, the decline was relatively moderate at 3.2 percentage points to 9.7 per cent.

The privately-held companies broadly had lower raw material costs at an average 48.8 per cent for these years, while listed companies shelled out 58.1 per cent of sales towards inputs.

Employee cost

But this advantage dwindled at the operating profit level, as unlisted companies ended up paying much more to employees. Employee costs as a percentage of sales were higher at 11.9 per cent for the unlisted sample, compared to just 6.6 per cent for the listed universe.

Private companies seemed more precariously placed on debt servicing too. In 2011-12, their pre-tax profits covered their interest expenses by barely two times. Listed companies were much better placed at 3.5 times.

Margin erosion

Listed companies also proved more resilient to the cost pressures of the last few years than their privately-held peers. Even as net profit margins for the entire universe declined between 2005 and 2012, the unlisted companies saw more margin erosion.

Their net profit margins slumped from 6.9 per cent in 2005 to 0.2 per cent in 2012, while listed companies saw their margins decline by 2.7 percentage points to 4.8 per cent.

Nalinakanthi.v@thehindu.co.in