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The 10-12 per cent reduction in employee cost by small companies could turn into a potential headwind in future in terms of a drag on consumption, cautioned State Bank of India’s economic research department.
In its research report Ecowrap, the department observed that: “Small companies, with turnover of up to ₹500 crore, are more aggressive in cutting costs, displaying reduction in employee cost by 10-12 per cent. This could turn a potential headwind in future in terms of a drag on consumption.”
The report cited the example of a set of 1,803 small companies (with turnover of up to ₹50 crore), which reported a 4.3 per cent dip in revenue but reduced their employee expenses by 11.5 per cent.
A set of 320 small companies (with turnover above ₹50 crore to ₹100 crore) reported a 9 per cent dip in revenue but reduced their employee expenses by 12 per cent.
Further, a set of 349 small companies (with turnover above ₹100 crore to ₹250 crore) and another set of 213 small companies (with turnover above ₹250 crore to ₹500 crore) reported a dip in revenue of 7 per cent and 6 per cent, respectively, but reduced their employee expenses by 8 per cent and 11 per cent, respectively.
While analysing more than 3,000 listed entities, excluding BFSI (banking, financial services and insurance) and telecom, the department observed around 11 per cent de-growth in top line and around 7 per cent growth in EBIDTA (earnings before interest, depreciation, tax and amortisation).
PAT (profit after tax) too grew by around 6 per cent in Q2 (July-September) FY21 as compared to Q2FY20.
Sectors such as Edible Oil, Packaging, FMCG (fast moving consumer goods), Pharmaceuticals, Cement, Steel, Consumer Durable etc. reported better numbers in key parameters.
Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said: “It is pertinent to mention that corporates are now focusing on all means of cost cutting including on wage bill. We can see sectors such as Cement, Consumer durable reduced their employee expenses by 6 per cent and 5 per cent respectively in Q2FY21 as compared to Q2FY20.”
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