Demand Conditions Facing Manufacturing Sector Weakened In Q2 FY20 Says RBI

The Reserve Bank released data on the performance of the private corporate sector during the second quarter of 2019-20 drawn from abridged quarterly financial results of 2,696 listed non-government non-financial (NGNF) companies.

Demand conditions facing the manufacturing sector weakened, with contraction in nominal sales in Q2:2019-20 that became broad based across industries; pharmaceutical companies, however, exhibited resilience and recorded higher sales.

Sales growth (y-on-y) moderated in the services sector (both IT and non-IT), especially in real estate, wholesale and retail trade companies. Softening of commodity prices resulted in lower input costs (i.e., cost of raw materials), which partly offset the decline in sales of manufacturing companies.

Growth in staff cost decelerated across all major sectors.

Operating profit of the manufacturing sector contracted by 11.8 per cent, mainly due to the production slowdown.

Non-IT services companies, especially in telecommunication, real estate and transport and storage services, registered sharp declines in operating profit.

Interest expenses of manufacturing companies increased marginally whereas interest expense of non-IT services companies increased sharply, partly due to inclusion of lease payment obligations under this head as per the new accounting norms.

The interest coverage ratio (ICR) of the manufacturing sector moderated to 4.62 on account of lower profits; however, the ICR of non-IT services companies slipped into negative territory due to losses recorded by these companies.

The operating profit margin dipped marginally for manufacturing companies, though their net profit margin increased, largely on account of lower tax provisions.

IT companies maintained pricing power as reflected in stable profit margins; non-IT services companies, however, registered a contraction in profit margins due to heavy losses recorded by telecommunication companies.

Funds mobilised by listed private manufacturing companies during H1:2019-20, were mainly used for fixed assets formation and deleveraging (reduction of debt). These companies were investing in financial instruments such as investment and extending loans and advances during the last couple of years in the face of subdued demand. This shift in Investment was found to be broad based.

Powered by Capital Market - Live News