India’s mainstream companies, excluding lenders and software services, reported combined pre-tax losses during the January-March period (Q4) for the first time in at least 24 quarters. Though India was under lockdown for only seven days of the quarter, global demand and commodity prices began falling from February as Covid-19 was spreading in other countries. As a result, several manufacturers, especially of commodities, reported losses.
Together, these 1,002 listed companies — excluding banks, non-bank lenders, insurers, brokerages, and information technology (IT) firms — reported a combined pre-tax loss of around Rs 2,700 crore during Q4. These firms had combined profit before tax (PBT) of Rs 1.06 trillion during Q4 of FY19 and Rs 1.05 trillion during Q3 of FY19. These firms’ combined revenues declined by 9 per cent year-on-year (YoY) to Rs 12.33 trillion during Q4 FY20 from Rs 13.53 trillion a year ago. The contraction in top line was the worst in 18 quarters and third consecutive revenue decline in as many quarters.
The previous low point for these companies was the slump in metal and energy prices in 2014-15 leading to a 9.4 per cent decline in revenues and profits of metals, mining, and energy companies. The current slowdown is, however, causing greater financial pain. For example, these companies’ combined PBT had declined by 24 per cent YoY during Q4 of FY16 but there were no losses at the aggregate level. The dip in revenues was, however, far worse at 9.4 per cent in Q4 of FY15.
Some of the companies with the biggest losses during the quarter included Vedanta (PBT loss of Rs 15,269 crore), Indian Oil (PBT loss of Rs 13,610 crore), and Tata Motors (PBT loss of Rs 9,312 crore). In all, a third (333) of these 1,002 companies reported a pre-tax loss during Q4 FY20, while another 37 per cent (373 firms) reported PBT contraction. The remaining 295 firms bucked the trend and saw an improvement in profitability.
After including the finance and IT firms in the sample, the combined PBT of 1,274 companies was down 81.2 per cent YoY to around Rs 27,000 crore during Q4 – the worst show in at least six years.
In comparison, these companies had reported PBT of Rs 1.42 trillion during Q4FY19 and Rs 1.83 trillion during Q3FY20.
Combined revenues including other income and lenders’ fee income was down 5.1 per cent YoY during Q4 at Rs 17.8 trillion. This was the sharpest decline in corporate revenues in at least six years. For comparison, these companies’ combined revenue had declined by 4.7 per cent YoY during Q3 FY15 due to a slump in commodity prices that year. Analysts say the unprecedented decline in corporate profitability is largely due to a growing mismatch between revenues and costs. For example, the combined operating expenses for companies excluding finance and IT firms, including salary and wages, raw materials, and overheads, was down just 1.9 per cent YoY during Q4 against a 49 per cent decline in operating profit during the quarter. Fixed costs such as interest and depreciation were up 9.2 per cent and 12.1 per cent, respectively, leading companies to losses.
In all, 442 companies in the entire sample reported pre-tax loss during Q4FY20 while another 453 companies reported YoY dip in PBT during the quarter. The remaining 379 companies, accounting for around 30 per cent of the sample, reported improvement in PBT.
Tata Consultancy Services was the top earner during the quarter with PBT of Rs 10,512 crore down 1.8 per cent YoY, followed by Reliance Industries at Rs 9,223 crore (down 33.4 per cent) and HDFC Bank at Rs 9,174 crore (2.5 per cent). However, eight out of 10 most profitable firms during the quarter reported YoY decline in PBT, indicating the financial challenge for India Inc in the forthcoming quarters when the full impact of Covid-19 lockdown will show.