- In the backdrop of the prolonged nationwide lockdown, an ICRA (Investment Information and Credit Rating Agency of India Limited) analysis of financial results of 489 companies (excluding financial sector entities),
- Has shown a year-on-year and sequential contraction in revenues, with aggregate revenues contracting by 31.1% y-o-y in the first quarter of FY2021.
- During the same period, the PBT (Profit before tax) margin contracted by 498 bps on a y-o-y basis, and by 70 bps sequentially to multi-quarter lows of 3.6%.
- Restrictions on manufacturing, industrial, construction and consumption activities for the major part of Q1 FY2021 due to imposition of nationwide lockdown primarily hurt the financial performance of the Indian corporate sector.
- The contraction in revenues was visible across most major sectors,
- but it was sharpest in consumer-oriented sectors where revenues contracted to nearly half of the year-ago levels, given customer wariness to effect purchases,
- Especially large-ticket ones, because of the uncertain economic environment and erosion of purchasing power.
- Sectors like airlines, hotels, retail, automotive and consumer durables, which primarily comprise discretionary purchases, were significantly impacted, while other consumer-oriented sectors
- Like FMCG (Fast Moving Consumer Goods) and consumer foods were relatively less impacted given the essential nature of these purchases.
- As per the analysis, stress was visible across major sectors, with the exception of select sectors like IT, telecom, sugar and pharmaceuticals.
- Commodity-linked sectors contracted by 34% on a y-o-y basis with almost all the major commodity sectors, including oil and gas, metals and mining, iron and steel and cement,
- Reporting revenue contraction on the back of tepid realisations due to benign commodity prices and subdued volumes.
- Industrial and infrastructure-oriented sectors also contributed to the slowdown with 29% and 38% y-o-y de-growth respectively during the quarter, given the restrictions on activity
- The 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, profitability indicators were relatively stable in sectors like cement, FMCG and power, supported by commodity tailwinds in a challenging demand environment.
- During the current quarter, ICRA expects that margins would revive from these historic lows, supported by better distribution of fixed overheads v
- Is-à-vis the period of negligible sales in Q1 FY2021.
- However, a sustained recovery to pre-pandemic levels would be gradual.
