Corporate contraction

Recovery depends on how quickly the pandemic is contained

The corporate results for the April-June 2020 quarter, announced so far, indicate the catastrophic impact of the lockdown and the pandemic. Consumption and core sector activities are down, though select sectors are displaying some resilience. A look at 317 listed companies with revenues of above Rs 10 crore shows a 22 per cent fall in net sales and 19 per cent fall in income year-on-year. While profit after tax (PAT) is down 22 per cent, operating profit has reduced by 7 per cent. If banks, refiners, and non-banking finance companies (NBFCs) are excluded from this sample, the performance is worse. The other sectors have registered a 22 per cent drop in sales, a 19 per cent drop in income, and a 37 per cent drop in PAT. Operating profit is down 12 per cent for the non-financial and non-refining segments. The tax burden has been lower by 27 per cent, while interest costs are also down slightly. There has been a 9 per cent boost in other income and this may not be sustainable.

The worst performances have been in big-ticket consumption areas like automobiles and the infrastructure-sensitive sectors, such as construction, cement, steel, and power. Excluding Tata Motors, which has the JLR situation to contend with, other automobile manufacturers have seen a 70 per cent contraction in turnover while PAT is down 98 per cent. Infrastructure development has slowed. Key player Larsen and Toubro has seen its turnover shrink 28 per cent while PAT has dropped to Rs 303 crore compared with Rs 1,472 crore a year ago. For a sample of 15 steel companies, there has been a 30 per cent drop in turnover and losses amount to Rs 1,133 crore, from a profit of Rs 1,146 in the second quarter of 2019-20. The capital goods segment has seen a 40 per cent drop in turnover and a 56 per cent drop in PAT.

However, some sectors have reported a decent performance. One bright spot is fertilisers and agro chemicals. These companies have registered a 29 per cent rise in turnover while PAT is up 139 per cent. Agriculture is slated to do well this fiscal year, and lower petroleum prices have reduced input costs. Banks and NBFCs have also seen top line and bottom line growth. But there is a large caveat. Non-performing assets are expected to swell as the moratorium ends at the end of August. Provisioning for banks may be inadequate, according to industry analysts and the latest Financial Stability Report from the Reserve Bank of India. The fast-moving consumer goods sector has turned in a decent performance, given the circumstances. The turnover for a sample of 11 FMCG companies has grown 2 per cent and PAT is up 18 per cent. The IT industry posted a turnover growth rate of 4 per cent and PAT growth of 2 per cent. Industry watchers believe the worst is over for software. Pharmaceuticals have shown 1 per cent rise in turnover coupled with a sharp 70 per cent fall in PAT. This is due to a terrible quarter for Sun Pharma. Other majors in the 21-company sample have done better. The trends are clear. Investment is down, big-ticket consumption is down, and infrastructure development is down. But agriculture and, by extension, the rural economy could provide some acceleration, though the momentum is already showing signs of slackening. A broader revival will depend on how quickly the pandemic is contained.