PBT margins of India Inc contract to multi-year lows of 3.6 per cent in Q1: ICRA

New Delhi [India], Sep 5 : Financial results of 489 companies in the Indian corporate sector (excluding financial sector entities) show aggregate revenues contracting by 31.1 per cent on a year-on-year basis in Q1 FY21, according to investment information firm ICRA.
During the same period, the profit before tax margin contracted by 498 basis points on a y-o-y basis and by 70 bps sequentially to multi-quarter lows of 3.6 per cent.
Shamsher Dewan, Vice President for corporate sector ratings at ICRA, said restrictions on manufacturing, industrial, construction and consumption activities for the major part of Q1 due to imposition of nationwide lockdown primarily hurt the financial performance of Indian corporate sector.
"The contraction in revenues was visible across most major sectors but it was sharpest in consumer-oriented sectors where revenues contracted to nearly half of the year-ago levels, given customer wariness to effect purchases, especially large-ticket ones, because of the uncertain economic environment and erosion of purchasing power," he said.
Sectors like airlines, hotels, retail, automotive and consumer durables which primarily comprises discretionary purchases, were significantly impacted while other consumer-oriented sectors like FMCG and consumer foods were relatively less impacted given the essential nature of these purchases.
Stress was also visible across other major sectors, with the exception of select sectors like IT, telecom, sugar and pharmaceuticals, said Dewan.
Commodity-linked sectors contracted by 34 per cent on a y-o-y basis with almost all the major commodity sectors including oil and gas, metals and mining, iron and steel, and cement reporting revenue contraction on the back of tepid realisations due to benign commodity prices and subdued volumes.
Industrial and infrastructure-oriented sectors also contributed to the slowdown with 29 per cent and 38 per cent y-o-y de-growth respectively during the quarter, given the restrictions on activity.
Despite the expectedly weak Q1, key indicators of consumer sentiment indicate that most sectors are witnessing sequential improvement since June and gradually returning to pre-pandemic levels in Q2 as lockdown restrictions gradually eased.
This has also been buoyed to a large extent by healthy rural sentiment, supported by two healthy crop cycles, timely onset of monsoons, healthy reservoir levels and expectations of a healthy kharif output, besides government's support measures.
Accordingly, select sectors like tractors and two-wheelers have witnessed faster recovery vis-a-vis earlier expectations.
ICRA said it expects that India Inc is on the slow path to recovery and will deliver a sequentially better performance in Q2 given easing of the earlier restrictions on economic activity.
Healthy rural demand on the back of normal monsoons, healthy kharif sowing and government support in the form of increased MNREGA allocations and MSME guarantee loans has been the silver lining in an otherwise bleak environment, offering some impetus to overall demand and economic recovery.
Accordingly, select sectors have witnessed faster recovery vis-a-vis earlier expectations. However, the rapid proliferation of the pandemic and intermittent regional lockdowns has the potential to further disrupt supply chains and consumer sentiments.
"Overall, the upcoming festive season over Q2 and Q3 remains critical in determining the sustainability of recovery visible so far," said Dewan.