Awash in red
Covid-19 has deeply impacted corporate earnings
The quarterly results of a large sample of 1,502 listed companies indicate devastation all around. Year-on-year net sales in April-june 2020 have declined 24.7 per cent to ~15 trillion from around ~19.96 trillion in the corresponding quarter in 2019. Profits after tax (PAT) have fallen 62.7 per cent to ~46,922 crore from the earlier ~1.26 trillion. Operating profits are down 15 per cent overall. If the highly volatile banking sector, refineries, and non-banking financials are excluded from the sample, the severe impact of the lockdowns becomes clearer. The other 1,306 companies have reported a 26.6 per cent decline in sales and an 85 per cent decline in PAT. This broad sample has registered combined losses of ~10,696 crore after tax, versus PAT of ~77,841 crore a year ago. However, agro-related businesses have done reasonably well, with pesticides and other agro-chemicals registering better profits on lower input costs. Sugar may also be in an up-cycle. This could help to keep the rural economy afloat. Agro chemicals have registered a 3.8 per cent rise in sales and a 64 per cent rise in PAT, while fertilisers have seen a 5.4 per cent rise in sales and a whopping 302 per cent rise in PAT. The sugar industry has seen a 20 per cent rise in turnover and a 69 per cent rise in PAT.
Among other sectors, FMCG and information technology have registered marginal gains in turnover and profitability while the pharmaceuticals sector has delivered flat results. Almost every other sector has seen either drastically reduced profits or outright losses. The 85 firms that have declared results in the IT sector registered a 4 per cent rise in turnover and 2 per cent rise in PAT. In FMCG, a list of 40 companies has seen the turnover shrinking by 5.8 per cent, though PAT has risen 6 per cent. In banking, 32 listed banks have recorded an 11 per cent rise in turnover and 49 per cent rise in PAT. These numbers should be treated with caution because the impact of moratoriums and changes in provisioning may be serious. An indicator of possible future problems in banking becomes apparent from the fact that 159 listed non-banking financial companies have together registered an 8 per cent fall in PAT and an 8 per cent rise in turnover. In most other sectors, losses have mounted, or profits and turnover have nosedived. The long list of distressed sectors includes automobiles, steel, non-ferrous metals, auto-ancillaries, tyres, power generation, chemicals, capital goods, infrastructure, cement, health care, hospitality, mining, and aviation.
Telecom deserves a special mention. Discounting the unlisted Jio, whose financials are reflected under its parent, Reliance Industries, the telecom services sector has registered a 7 per cent rise in turnover but losses after tax have zoomed to an incredible ~42,235 crore, which is more than their turnover of ~39,542 crore. This is due to the overhang of the adjusted gross revenue case. The trends are pretty clear. Consumption has faltered; investments are low, going by the poor performance of infrastructure and capital goods; and core sectors are also registering losses. Agriculture is the one bright spot but good agro-performance won’t be enough to pull the economy out of this trough. Recovery would depend on how quickly the pandemic is contained and appropriate policy action.