The average profit growth of 57 large corporates which have so far declared earnings for the year 1999/2000 (April-March) was 16 percent and would have been lower but for the 95 percent logged by the high growth software segment.The average is likely to get worse as the reporting seasonunfolds with most "old" economy firms yet to announce their results, while the best of the infotech firms have posted theirs.

From the universe of 57 companies the average net profitgrowth of 42 non-software firms was 12 percent.

Though pharmaceuticals led in the non-software segment witha mean growth of 25 per cent analysts were disappointed and lowered their sights for the sector in the current year.

Many big firms had to incur higher costs on product launches and competition from smaller firms especially in the vitamins and anti-infectives segment hurt margins.

Topline growth was lower than expected and price undercutting, in the battle to maintain sales growth, cut margins.

"Results in the pharmaceuticals sector have been disappointing because of poor volume growth, with the impact being most visible in older molecules and vitamins which comprise a major chunk of revenue," said C. Srihari, analyst at Khandwala Securities.

One sector favourite, Dr.Reddy's Laboratories, saw 1999/00 net profit rising 17 percent to Rs 603.20 million while sales grew 16 per cent.

Sun Pharmaceuticals' net rose 53 percent to Rs 904.3 million on 35 per cent higher net sales while Cipla's net profit rose 15 per cent to Rs 290.8 million and sales rose 30 per cent.

Another favourite, Ranbaxy Laboratories, actually saw its first quarter to March net profit drop 19.4 per cent, hurt by new product launch costs, while sales grew marginally.

Price inflexibility has also been a dampener.

"You cannot have the kind of accelerated growth that onegets to see in software, after all the industry is regulated by the government to a large extent," said Manish Shukla, research analyst at Parag Parekh Financial Advisory Services said."Because of government price controls, pharma companies candrive top line primarily through volumes and that has not happened," he said.

The Drug Price Control Order regulates the prices of 76essential drugs by fixing a cap on their prices.

Software firms on the other hand continued to show robust earning growth and 15 firms which have so far declared their results logged a rise of 95 percent.

Analysts said pressure on margins and a high base effect, and scarcer high profit business will keep earnings growth moderate for some this year.Mahesh Vaze, software analyst at Motilal Securities, forecast that the high margin business will become the preserve of fewer firms.