Manufacturing firms struggle to grow
Their revenue share in listed space declined to record low of 27.2% in Q1FY22
India’s industrial sector has seen a recovery from the lows of the first wave of the pandemic last year but the revival is being led by commodity producers such as metals and oil & gas companies while manufacturers such as auto firms and makers of consumer goods continue to struggle. The listed manufacturers’ combined revenues were down 16 per cent quarter-on-quarter in April-june FY22.
India’s industrial sector has seen a recovery from the lows of the first wave of the pandemic last year but the revival is being led by commodity producers such as metals and oil & gas companies while manufacturers such as auto firms and makers of consumer goods continue to struggle.
The listed manufacturers’ combined revenues were down 16 per cent quarteron-quarter (Q-O-Q) in April-june FY22 and were just 1.8 per cent higher than in April-june FY20. In comparison, the combined revenues of all 2,900 listed companies in the Business Standard sample were down 9 per cent Q-O-Q in April-june FY22 and were 5.3 per cent higher than the Q1 figure of FY20.
As a result, the share of manufacturing companies in the combined revenues of all listed firms declined to a record low of 27.2 per cent in Q1FY22 from 29.4 per cent in Q4FY21 and nearly 32 per cent five years ago in the April-june 2017 quarter.
The manufacturing companies are doing even worse on the earnings front. The listed manufacturers accounted for only 22.9 per cent of the combined net profits of all listed companies in Q1FY22. This is the lowest in at least five years with the exception of April-june FY21, when most of the manufacturing sector was shut due to lockdown.
For comparison, the manufacturing companies accounted for 29.6 per cent of India Inc’s combined earnings in Q4FY21 and 29.1 per cent two years ago in Q1FY20. (See the adjoining chart.)
The manufacturing companies in our sample exclude commodity producers such as metal & mining companies.
Technically commodity producers also fall in the manufacturing sector but their growth dynamics are different from those using commodities such as metals, cement, energy, and petrochemicals.
Analysts attribute the decline in manufacturing to weak consumer demand.
“If we look at firms except those that manufacture necessities such as food and personal care products, all others have suffered a drop in volumes in the past two years due to weak consumer demand,” said G Chokkalingam, founder and managing director, Equinomics Research & Advisory Services.
According to him, the decline is most visible in the demand for passenger cars and two-wheelers. Sales of passenger vehicles were down 9.3 per cent in FY21 while those of two-wheelers declined 12.1 per cent last financial year, according to the data from Society of Indian Automobile Manufacturers (SIAM). The figures include exports.
As the auto and the auto-ancillary sector is the biggest manufacturing industry in the country, accounting for nearly a quarter of all manufacturing, the slowdown in the sector has hit the revenues and earnings of the sector.
Commodity producers such as steel and non-ferrous metal producers, cement makers, and paper makers have seen a much better recovery in their revenues and earnings in the post-pandemic period.
The combined revenues of the listed commodity producers in the Business Standard sample in Q1FY22 were 4 per cent higher than in Q1FY20 and down only 5.6 per cent Q-O-Q.
The listed commodity companies accounted for 55 per cent of the combined revenues of all listed manufacturing companies in Q1FY22, up from 52 per cent in Q4FY21 and 48.5 per cent in April-june FY17.
Their profit share is even higher. The commodity producers accounted for 61.5 per cent of the combined profits all manufacturers in Q1FY22, up from around 44 per cent five-years ago.
Analysts say commodity companies are facing a slowdown in demand due to a poor showing by user industries but it has been more than compensated by a rise in price realisation.