As shown in chart 1, net sales of more than 3,000 companies analysed by Business Standard grew by 10.1 per cent in the third quarter of 2017-18, up from 7.2 per cent in the previous quarter. Excluding those of oil companies, banks, and other financial firms, net sales rose by 9.1 per cent in Q3FY18, up from 6.3 per cent in the previous quarter.
As seen in chart 2, among larger sectors, fastest growth was observed in casting, forging and fasteners, steel, auto ancillaries, cement and non-ferrous metals. On the other hand, some of the worst-performing sectors in the recently concluded quarter are diamonds, gems and jewellery, edible oil, telecom services, consumer durables and shipping as shown in chart 3.
The firm-level data also shows that profits of these companies saw an uptick in the quarter ended December 2017. The reported profit after tax grew by 4.1 per cent in Q3FY18, up from a 12.7 per cent contraction in the previous month. But as seen in chart 4, profit growth is better if one excludes oil companies, banks, and financial firms.
However, employee costs have grown by 7.6 per cent in Q3FY18, up from 6.6 per cent in the previous quarter.
Though some of these firms may have benefited from a low base (demonetisation was announced in Q3FY17), analysts say the underlying trends suggest a recovery in the economy with a broad-based volume growth across sectors.
Further, as chart 6 shows, there has been a steady improvement in corporate India’s interest coverage ratio. The ratio, which is calculated by dividing a company’s earnings before interest and taxes by its interest expenses, measures the ability of a firm to meet its interest obligations. The lower the ratio the more the firm is burdened to service its debt. But as seen in chart 6, the interest coverage ratio has risen from 0.72 in Q4FY17 to 1.16 in Q3FY18, suggesting an improvement in India Inc’s financial position.