The profitability of India Inc in the June 2019 quarter grew at just 6.6 percent as against 24.6 percent in the corresponding quarter of last year signalling a clear slowdown, Care Ratings' economist Rucha Ranadive wrote in a report dated August 21, 2019.
Net sales of India Inc grew at a paltry 4.6 percent as against 13.5 percent in the same quarter of last fiscal.
This analysis is based on a sample of nearly 3,000 companies, the report said.
However, all is not lost for India Inc yet. The report said raw material costs on an average declined by 1.1 percent helping companies lower their expenses. Moreover, operating profit margin remained stable at around 20 percent in the first quarter of fiscal year 2019-20. Not only this, profit after tax (PAT) margins rose marginally by 10 basis points to 6.5 percent.
Gloom and doom?
Ranadive said net sales for 2,574 companies (excluding banks and finance companies) rose at just 2.7 percent as against 14.2 percent in the same period of last year. Operating profits fell by 1 percent as against a growth of 28.1 percent while interest costs to service their loans rose by 12.4 percent as against 9.3 percent.
She said, "While the borrowings by the corporates have remained more or less stable as the bank credit growth in the manufacturing and services has grown by 9.3 percent (yoy) in Q1 FY20 as compared with the 9.5 percent in the comparable quarter last year, the cost of the borrowing has increased as the Weighted Average Lending Rate on fresh loans increased by 35 basis points to 9.77 percent in Q1 FY20 (9.42 percent in Q1 FY19) and average Marginal Cost of Lending Rate (MCLR) is higher by 25 basis points to 8.73 percent in Q1 FY20 (8.48 percent in Q1 FY19) resulting in higher interest expense by the corporates during the quarter."
Profitability of these companies has declined during the quarter. In Q1 FY20, PAT contracted by substantial -11.9 percent as against the 52.9 percent growth in the corresponding quarter in FY19, the report said.
Who got hit the most?
Care Ratings' analysis show companies with net sales of more than Rs 1,000 crore saw a dip of 11.2 percent in their profits while their net sales grew by 3.5 percent. There are a total of 576 companies in this range as analysed by Care Ratings with an aggregate net sales of Rs 1,399,884 crore.
On the other hand, 253 companies with net sales of between Rs 500 and Rs 1000 crore saw their sales dip by 1.9 percent while their net profits grew by 19.1 percent. The aggregate net sales of these companies stood at Rs 44,986 crore, a third of the top 576 companies.
Ranadive said, "Barring the large companies (net sales above Rs 250 crore), the all other brackets indicated decline in net sales in Q1 FY20. The net sales of large companies increased, though moderately, by 3.5 percent in Q1 FY20, lower than the 15.3 percent growth in Q1 FY19. However, the net profits of these companies declined by 11.2 percent during the first quarter of FY20 compared with a growth by 46.6 percent during Q1 FY19."
How did various sectors perform?
Here are some of the factors leading to weaker performance of certain selected industries:
Sugar
The industry witnessed increase in net sales by 7.8 percent during Q1 FY20 though it did not result in increase in the profitability of the industry.
Automobiles
Sales of passenger vehicles and two- & three-wheelers segment witnessed a year-on-year decline of 14.8 percent and 9.7 percent, respectively
on back of increased cost of ownership (insurance cost), the report said.
Textiles
Higher sales and better realisations has aided the industry to book profits during the quarter as against a net loss witnessed in the corresponding period previous year.
Banking
The net sales of private banks grew by 23 percent in Q1 FY20 higher than the 17.4 percent growth during Q1 FY19. Public sector banks too witnessed growth in net sales by 8.1 percent compared with the 5.1 percent growth in Q1
FY19.
Finance
Finance sector has registered double digit growth during the quarter Q1 FY20 with net sales growing by 15.4 percent while the net profits increasing by 10.9 percent. These growth rates were however lower than that in Q1 FY19 – net sales 17.4 percent and net profits 32.8 percent.
Banks reported better performance this quarter due to improvement in the NPA situation, rising net interest income as well as uptick in credit off take. However, higher provisioning for NPAs has pressured the performance of the public sector banks during the quarter.
Metals
The net sales declined by 4.8 percent while the net profits contracted by 57.4 percent in Q1 FY20 over the previous quarter. The primary factor dragging the
performance is the decline in prices of metals that had an impact on the sales and profit margins.
FMCG
The industry registered double-digit growth during the quarter – net sales grew by 9.4 percent while net profits expanded by 32.2 percent in Q1 FY20.
Real estate
The net sales have increased by 22 percent while the net profits of these companies have more than doubled in Q1 FY20.
The report said, "20 out of 62 industries have registered negative growth in the net sales during the quarter."
