India Inc on slow path to recovery, better performance expected in Q2

By anaafrica On Sep 3, 2020

New Delhi, Sep 3 (IANS) Despite an expectedly weak Q1FY21, key indicators of consumer sentiment indicate that most sectors are witnessing sequential improvement since June and gradually returning to pre-pandemic levels in Q2FY21, ratings agency ICRA said in an analysis report.

Accordingly, the analysis of financial results of 489 companies in the Indian corporate sector, excluding financial sector entities showed a Year-on-Year and sequential contraction in revenues with aggregate revenues contracting by 31.1 per cent on a YoY basis in Q1 FY2021.

During the same period, the PBT margin contracted by 498 bps on a YoY basis, and by 70 bps sequentially to multi-quarter lows of 3.6 per cent.

“The outbreak of Covid-19 pandemic followed by extended lockdowns in the country, both nationally and then the Indian corporate sector, already grappling with a weakening macroeconomic scenario, faced major disruption because of the Covid-19 pandemic and two-month-long nationwide lockdown imposed to combat the same,” the report said.

“Across sectors, the impact of the outbreak and lockdown was visible in the financial performance of corporate entities in Q1 FY2021.”

According to report, stress was also visible across other major sectors, with the exception of select sectors like “IT, Telecom, Sugar and Pharmaceuticals”.

“Commodity-linked sectors contracted by 34 per cent on a YoY basis with almost all the major commodity sectors, including ‘Oil and Gas, Metals & Mining, Iron & Steel, Cement’ etc reporting revenue contraction on the back of tepid realisations due to benign commodity prices and subdued volumes,” the report said.

“Industrial and infrastructure-oriented sectors also contributed to the slowdown with 29 per cent and 38 per cent YoY de-growth respectively during the quarter, given the restrictions on activity.”

As per the analysis, negligible revenues for the major part of the quarter, which impacted the absorption of fixed overheads, and lower realisation in commodity sectors especially metals and oil and gas, weighed on the profitability of India Inc, with PBT margins contracting to multi-year lows.

“This was despite benefit of subdued raw material prices and favourable rupee movement in select sectors like IT,” the report said.

“Some of the key sectors with sharp margin contraction included airlines, hotels, retail, health care, gems and jewellery etc. Sharp contraction in revenues given restrictions on operations, impacted the absorption of fixed overheads in these sectors and many of them struggled to cover even operating costs.”

In contrast, the report said that profitability indicators were relatively stable in sectors like cement, FMCG and power, supported by commodity tailwinds in a challenging demand environment.

“Despite the expectedly weak Q1 FY2021, key indicators of consumer sentiment indicate that most sectors are witnessing sequential improvement since June 2020 and gradually returning to pre-pandemic levels in Q2 FY2021 as lockdown restrictions gradually eased,” the report said.

“This has also been buoyed to a large extent by healthy rural sentiment, supported by two healthy crop cycles, timely onset of monsoon, healthy reservoir levels and expectations of a healthy kharif output, besides the government’s support measures. Accordingly, select sectors like tractors, two-wheelers etc have witnessed faster recovery vis-a-vis earlier expectations.”

In addition, it said indicators like freight activity, electricity and fuel consumption also indicate a healthy recovery close to pre-pandemic levels as we progressed into Q2 FY2021.

–IANS

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