For loss-making companies, FY18 worst year in a decade

India Inc’s performance was pulled down by loss-making companies even as 1,794 listed companies reported a combined net profit of ~4.42 trillion in 2017-18. During the year, 344 companies reported a combined loss of ~1.8 trillion, more than double the number in 201617, and the highest in at least a decade.

Companies in the red have now cumulatively lost ~4.85 trillion in the last five years. Three quarters of this was lost in the last three years.

And contrary to the general perception, not all these losses are due to bad loans accumulated by public sector banks and other corporate lenders. Listed banks together accounted for less than half of all corporate losses in 201718 (~850 billion).

The combined losses of companies, excluding banks, were up nearly 50 per cent in 2017-18 to ~946 billion from ~650 billion a year earlier. (See chart)

Loss-making companies accounted for 14 per cent of the combined revenue of the companies in the sample, 17 per cent of all corporate salaries and wages, and half of the sample companies’ interest payments in 2017-18.

The analysis is based on the 10-year annual financial data of the 1,794 companies across sectors. It excludes companies with annual revenues of less than ~0.25 billion in 2017-18. The sample has also been adjusted for listed subsidiaries of holding companies.

In all, the companies in the sample reported a combined net profit of ~4.42 trillion in 2017-18, down 5 per cent from ~4.56 billion a year ago.

If loss-making companies are excluded, India Inc’s net profit would have grown 40 per cent, year on year, in 2017-18.

Corporate India’s combined net profit has declined in three out of the last four years. Some of the prominent names that reported large losses in 2017-18 are Reliance Communications (~239 billion), Tata Tele Maharashtra (~98.4 billion), Punjab National Bank (~1.21 billion), IDBI Bank (~81.3 billion) and Idea Cellular (~41.7 billion).

Many of the candidates for insolvency resolution, such as Videocon Industries (loss of ~27.1 billion in 2016-17), Bhushan Steel (~36.2 billion loss in 2016-17) and Alok Industries (`30.8 billion loss in 2016-17) are yet to declare their financial results for 2017-18.

Analysts said this was the worst period for earnings growth in decades and pointed to challenges confronting companies, especially those in capitalintensive, investment and foreign trade-related sectors.

“Corporate earnings never fully recovered from the 2008 Lehman crisis. In recent years, this was accentuated by economic disruption caused by demonetisation and the rollout of the goods and services tax,” said Dhananjay Sinha, head of research, Emkay Global Financial Services.

Companies have also been affected by a sharp contraction in India’s foreign trade since 2008. “Foreign trade’s contribution to India’s GDP declined from around 56 per cent in 2011-12 to 40 per cent now, reversing the trend of a steady rise in trade-to-GDP from 1991,” Sinha added. The result has been a sharp slowdown in volume growth and profitability in trade-related sectors such as metals, pharmaceuticals, textiles, garments, gems and jewellery, shipping, and chemicals. Things have worsened with the spread of protectionist measures adopted by countries such as the US. At its peak in 2013-14, exports accounted for 25.4 per cent of India’s GDP, which is down to 19.1 per cent now.

“The price war triggered by Reliance Jio has made most telecom operators financially unviable. Most incumbent operators are now making losses,” said G Chokkalingam, founder and managing director, Equinomics Research and Advisory Services. Four listed telecom companies — Reliance Communications, Tata Tele (Maharashtra), Idea Cellular and Mahanagar Telephone Nigam — lost over ~400 billion at the net level.