Demand Conditions For Manufacturing Sector Weakened In Q1 FY20

The Reserve Bank released data on the performance of the private corporate sector during the first quarter of 2019-20 drawn from abridged financial results of 2,696 listed non-government non-financial (NGNF) companies. Demand conditions for the manufacturing sector weakened in Q1:2019-20, with a contraction (y-on-y) in nominal sales; petroleum products, iron and steel, motor vehicles and other transport equipment companies were the major contributors.

Sales growth (y-on-y) of information technology (IT) companies moderated, whereas that of the non-IT services companies, especially in wholesale and retail trade, transport and storage services, posted higher sales growth. Softening of commodity prices resulted in lower input costs (i.e., raw materials), which aided manufacturing companies. Staff cost in manufacturing and IT companies decelerated marginally, but it increased for non-IT services.

Operating profit for the manufacturing sector contracted by 4.3%, mainly due to a production slowdown. Non-IT services companies, especially in wholesale and retail trade and telecommunication, registered sharp increases in operating profit.

Interest expenses of manufacturing companies witnessed moderation in growth (y-on-y), primarily due to contraction in interest expenses of iron and steel companies. The interest coverage ratio (ICR) of the manufacturing sector remained stable at above five; while it improved for non-IT services companies. Pricing power improved in both manufacturing and services sectors; muted commodity prices supported profit margins of manufacturing companies.

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