India Inc’s Q1 sales mirror contraction in GDP

Corporate performance for the first quarter of FY21 very closely mimics the record contraction in India’s GDP growth to -23.9 per cent, with net sales of companies registering a contraction of 25.3 per cent in Q1FY21, shows a Care Ratings analysis.

The Securities and Exchange Board of India had provided a relief to the corporates and extended the deadline for filing the quarterly results for Q1FY21 till September 15 and most companies have by now disclosed their Q1 performance.

According to Care Ratings, the combined net sales of 1,666 companies registered a contraction of (-) 25.3 per cent in Q1FY21 compared with 5.7 per cent growth in the corresponding period last year.

On account of lower revenues, various industries had to resort to cutting costs to minimise the losses. The total decline in aggregate expenditure was 29.4 per cent at the aggregate level (1,666 companies) with the steepest fall observed for raw material cost (-51.4 per cent), electricity cost (-34.2 per cent) and selling and distribution cost (-34.5 per cent).

Although the average growth in employee cost in Q1FY21 is 5.1 per cent, as many as 52 out of the 65 industries have recorded a growth less than the average growth. Out of the 52 industries, 46 industries have recorded de-growth in employee cost.

Robust growth in employee cost expenditure was seen in industries like public sector banks (32.1 per cent), stock broking (17.5 per cent), ports (12.1 per cent), household and personal products (11.4 per cent) and telecom service providers (9.8 per cent).

Net profits of the sample companies declined by almost 60 per cent during the quarter as against a growth of 4.7 per cent in same quarter last year.

Despite the savings in tax expenses, the reason for a sharp fall in net profits can be ascribed to sector-specific reasons, chiefly the one-time exceptional charge provisioned by telecom companies related to the statutory dues. Excluding the telecom sector, the drop in net profits has been significantly lower at 29.4 per cent YoY, Care Ratings said.

Corporates other than banks and finance companies witnessed a sharper fall during the quarter. Net sales of these companies deteriorated by 34.5 per cent while their net profits plunged by 82.2 per cent YoY.

The performance of the banking sector has been the bright spot among the various industries. Public sector banks, which have been grappling with the NPA overhang until FY19, recorded a growth of 20.8 per cent in net sales and 32.1 per cent in net profits.