India Inc earnings drop 22% in March quarter over legacy issues: Icra

Earnings of India Inc fell by nearly a fourth in January-March as compared to the year-ago period due to legacy problems, Icra said on Thursday, warning of deeper impact in the June quarter due to Covid-19-induced lockdown.

Absolute earnings of the corporate India contracted by 22 per cent and 12 per cent in Q4FY20 and FY20, respectively. Further, the impact is expected to be even more pronounced during Q1 FY2021, given the stringent two-month long nationwide lockdown, the rating agency said.

It can be noted that with the onset of the pandemic, the investor class had got apprehensive about corporate earnings which resulted in a massive sell-off in equities.

India was under lockdown for the past two months. Icra said it analysed 184 companies, excluding the ones in the financial sector, for the study.

The study showed a 2.9 per cent revenue contraction during the March quarter when compared to the year-ago same period, and a 0.30 per cent dip in the operating profit margins to 16.8 per cent, it said.

The financial performance of the Indian Corporate sector in Q4 FY2020 was primarily hurt by consumer and commodity-linked sectors, both of which were impacted significantly as the pandemic started spreading rapidly, Icra vice president for corporate sector ratings Shamsher Dewan said.

He added that despite some uptick in the initial part of the last quarter, major consumer-oriented sectors such as FMCG, consumer durables and auto and ancillaries reported either decline or marginal growth in sales volumes, weighed down by subdued consumer sentiment and increased wariness.

The lockdown has compounded the same, it said.

On the other hand, tepid realisations driven by softening commodity prices, coupled with subdued volumes in light of the pandemic outbreak and macroeconomic slowdown, resulted in revenue contraction for major commodity sectors, including oil and gas entities, metals & mining and iron & steel, he said.

The major impact on revenues came from commodity-linked sectors, which witnessed a contraction of 15 per cent in revenues on account of tepid realisations and subdued volumes, the agency said, adding revenues in the consumer-oriented sectors fell by 9 per cent.

From a ratings perspective, the agency said the interest coverage ratio of the sample companies, adjusted for sectors with low debt levels (like IT, FMCG and pharma) also witnessed a weakening to 3.0x from 3.5x in Decmeber 2019 and 3.6x in March 2019, it said.