RBI Says Demand Conditions In Manufacturing Sector Weaken, Notes Improved Sales Growth For Consumer Driven Sectors

The Reserve Bank released data on performance of the private corporate sector during the third quarter of 2018-19 drawn from abridged financial results of 2,703 listed non-government non-financial (NGNF) companies. Demand conditions in the manufacturing sector weakened as reflected in moderation of sales growth (y-o-y). This moderation was observed mainly in Textiles, Iron and Steel, Motor Vehicles and other Transport equipments industries whereas sales growth improved for consumer-driven sectors such as Food Product and Beverages, and Pharmaceuticals.

Sales growth of the Information Technology (IT) sector remained broadly unchanged in relation to the previous quarter; while the services (non-IT) sector maintained the pace of sales growth, riding on the improvement recorded by the Transport and Storage services industries, the Telecommunication sector continued to experience contraction in sales. Input costs (i.e., raw materials) eased for manufacturing companies in Q3:2018-19 in line with the softening of commodity prices. Staff cost growth increased for the services sectors relative to Q2:2018-19.

Operating profit growth in the manufacturing sector slackened in the face of lower growth in the value of production. Operating profits of the services (non-IT) sector remained in contraction in Q3:2018-19. Interest expenses incurred by the manufacturing sector witnessed a dip from their level a year ago, reflecting ongoing deleveraging in the corporate sector.

The Interest Coverage Ratio (ICR) of the manufacturing sector remained broadly at the level observed in the preceding quarter; with the ICR for the services (non-IT) sector showing signs of improvement, primarily on account of less interest expenses incurred by telecommunication and improved gross profits recorded by transport and storage services companies.

The manufacturing sector continued to record strong growth in net profits, benefitting from the lower tax provisions in Q3:2018-19. Pricing power in terms of operating profit and net profit margins remained flat in case of the manufacturing sector. Net profit margin of the IT sector declined marginally. Steady demand conditions led to an increase in operating profit margin of services (non-IT) sector; however, net profit margin recorded by this sector suffered due to less support from non-operating income, relative to Q2:2018-19.

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