Lower Sales Led To Decline In Operating Profits Of Manufacturing Companies in Q4FY20 Says RBI

The Reserve Bank released data on the performance of the private corporate sector during the fourth quarter of 2019-20 drawn from abridged quarterly financial results of 2,6201 listed non-government non-financial (NGNF) companies.

Sales of manufacturing sector companies declined by 15.6 per cent (Y-o-Y) in Q4:2019-20 as compared with 5.9 per cent growth in Q4:2018-19; this contraction was broad based across industries.

Services sector companies recorded deceleration in activities; sales growth (Y-o-Y) for information technology (IT) and non-IT services sector companies increased by 8.0 per cent and 0.8 per cent, respectively, in Q4:2019-20.

Subdued production related activities resulted in lower expenditure on raw materials for the manufacturing sector in Q4:2019-20.

Staff cost growth (Y-o-Y) moderated for the manufacturing and IT services sectors and declined for the non-IT services sector in Q4:2019-20.

Lower sales led to decline in operating profits of manufacturing companies in Q4:2019-20; operating profits of services companies (IT and non-IT) also decelerated due to moderation in sales growth.

Interest expenses of services sector companies (IT and non-IT) have surged, as the new accounting norms prescribed inclusion of lease payment obligations under this head.
Interest coverage ratio (ICR) of the manufacturing companies moderated to 3.5 in Q4:2019-20 from 4.3 in the previous quarter because of lower earnings; the ICR of non-IT services companies remained below one.

Profit margins dipped for manufacturing companies, though they remained steady for IT companies; Non-IT services companies recorded negative net profit margins driven down by heavy losses.

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