News Analysis

India Inc’s revenue contracts in Q2 as demand slows

Keerthi Sanagasetti BL Research Bureau | Updated on November 11, 2019 Published on November 10, 2019

While FMCG companies managed a 6 per cent growth in revenue, the number is still lower than the 11-13 per cent growth in the previous quarters. File photo   -  THE HINDU

But profit surges thanks to corporate tax cut and a significant rise in ‘other income’

Almost every macro-economic indicator has painted a gloomy picture of the economy in the last couple of months and this has taken a toll on the earnings of India Inc. in the second quarter of FY19.

Based on the results declared so far, the topline of listed companies (excluding banks and financial companies) contracted 2.4 per cent in the September 2019 quarter, compared to the corresponding period last fiscal year.

However, the reported profits grew a healthy 27 per cent thanks to recent corporate tax rate cut. Tax incidence (tax as a percentage of PBT) for the universe dropped to 23 per cent from 31 per cent in the June 2019 quarter. It was also lower than the 28 per cent in September 2018 quarter. Since these savings came in despite all the one-time reversals of Deferred Tax Assets and Minimum Alternate Tax (MAT) credit, we can expect the tax saving to be still higher in the coming quarters.

Corporates seem to have got a major fillip from the surge in ‘other income’ as well; India Inc reported a 25 per cent growth under this head in the September quarter.

Aggregate profits were also higher due to banks and financial companies reporting optically better growth this quarter compared to the dismal numbers they reported in the September 2018 quarter. Excluding banks and financial companies, earnings of listed companies grew by a much lower 10 per cent.

This analysis is based on the results declared by 852 companies for the September 2019 quarter.

Weak demand impacted revenue growth in many sectors. Net sales of automobile and auto ancillary companies dropped 12 per cent and 15 per cent, respectively, in the second quarter of FY19 compared to last year. Consumer durables makers saw a 7 per cent decline in revenue.

While FMCG companies managed a 6 per cent growth in revenue, the number is still lower than the 11-13 per cent growth in the previous quarters.

IT companies thriving on export orders also reported a comparatively better 8 per cent growth. Cement and infrastructure companies — regarded as pillars of economic revival — posted positive topline growth as well. However, cement manufactures saw a topline growth of 4 per cent in the September quarter — which is the slowest in the last three quarters. In the case of infrastructure companies, Larsen and Toubro’s 15 per cent topline growth helped boost the sector’s aggregate.

 

Margins steady

Despite weak topline numbers, companies reported steady margins. This could have been achieved through a tight rein on cost. Companies saved significantly on raw material costs, which declined by 12 per cent in the September 2019 quarter. The CRB Index (by Thomson Reuters) — an indicator of core commodity prices — dropped 11 per cent in the September 2019 quarter compared to the same period last year. This was a major contributor to India Inc’s savings on input costs.

The operating margins were at 22 per cent in the September 2019 quarter down marginally from 23 per cent recorded in the June quarter. Operating profit margin of manufacturing companies was down a tad at 12 per cent compared to 13 per cent in the June 2019 quarter. But interest costs for India Inc grew by 8 per cent, due to tighter liquidity and weak transmission of the RBI’s interest rate cuts.

The picture can alter going forward, as many companies are yet to report their numbers for the September 2019 quarter. However, the 852 companies that have declared their results include 35 from NIFTY 50 and 280 from BSE 500 index. This implies that the upcoming results will have to be stellar, for India Inc to show a better picture.

Published on November 10, 2019
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