The base effect

Corporate performance remains uncertain

Corporate results for April-June 2021-22 have been buoyed by the low base effect of the corresponding period of the previous year. There are also incipient signs of revival and the global bull run in industrial metals has provided an impetus. But the credit offtake has stagnated, and consumption is flat. A sample of 894 listed companies have registered a year-on-year rise of 38 per cent in net sales at Rs 17 trillion. There is a 23.6 per cent rise in operating profits (PBDIT) at Rs 5.04 trillion, with profit after tax (PAT) up by 166.5 per cent at Rs 1.53 trillion and profits adjusted for extraordinary items (PIE) increasing by 120 per cent. Financing costs are down 10 per cent. Corporate tax collection has risen by 56.7 per cent and employee-related expenses are up 15 per cent and power/fuel costs by 48 per cent.

Excluding volatile sectors like banks, non-banking financial companies, and refineries, the remaining 775 companies have witnessed a 49 per cent rise in operating income, 88 per cent in PBDIT, and 292 per cent in PIE. Refiners and oil-marketing companies have seen lower refining margins due to rising crude oil prices. The 31 banks in the sample have seen a 2.7 per cent fall in operating income, while PAT is up 39 per cent, boosted by a 10 per cent drop in interest costs and 24 per cent rise in fee-based income. The agro-economy, which was buoyant a year ago, is plateauing but the sugar cycle may be on the downswing. Growth has moderated in agro-chemicals, fertilisers, and tractors. Profits in fast-moving consumer goods, which depends on semi-urban consumption for momentum, have been flat with a 17 per cent revenue expansion and 8 per cent rise in PAT.
 

The automobile and auto-ancillaries industries have weathered the worst. In auto ancillaries, 35 firms under review have seen a 140 per cent revenue expansion and aggregated PAT of Rs 522 crore versus losses of Rs 804 crore YoY. Six of seven automobile majors have reported a 129 per cent revenue expansion, with Rs 2,203-crore rise in PAT versus losses of Rs 108 crore YoY. The seventh, Tata Motors, struggled with losses of Rs 4,451 crore. The castings and forgings sector saw a 188 per cent revenue expansion and a turnaround, moving to profits from losses. The capital goods sector also saw a turnaround with revenues up 51 per cent. The industrial chemicals industry delivered a similar performance. Paper, packaging, and paints industries all benefited from the base effect. Cement, construction, infrastructure, and logistics saw a revenue expansion and better profitability alongside optimistic advisories.

Among export-oriented sectors, IT and pharmaceuticals are steady. The IT industry reported a 27 per cent rise in PAT and 18 per cent rise in revenues. Pharma reported a 48 per cent rise in PAT and 19 per cent rise in revenues. Textiles saw a 134 per cent revenue expansion and moved to profitability from losses. The big bull stories are in metals and minerals. Across 35 steel companies, profit hit an aggregate Rs 11,604 crore versus losses YoY. Revenues rose 131 per cent. In non-ferrous metals, revenues rose 65 per cent and PAT rose 680 per cent. Miners reported an 80 per cent rise in revenues while PAT rose by 325 per cent. Given the base effects of the 10-week lockdown a year ago, this is not a very strong performance and the second wave had a negative impact. Growth remains fragile, and would weaken further in the case of another wave.