Demonetisation bit into profit of small companies the most

An analysis of third quarter results of India Inc show that it was small companies that bore maximum brunt of demonetisation drive. 

Care Ratings, in its Corporate Performance report for Q3FY17, said that during Q3-FY17, small companies (size range of sales below Rs 100 crore) faced the heat of the demonetisation drive as a large proportion of their transactions happen in cash and operations were severely impacted. 

Care Ratings calculated performances of 2,126 companies to come out with its results. 

It said that small companies posted a cumulative loss of Rs 1,161 crore in the given quarter. Net profits had increased from Rs 79 crore in Q3-FY15 to Rs 964 crore in Q3-FY16. 

Companies with sales between Rs 100 crore and Rs 250 crore posted 71.6% decline in net profit, from Rs 1146 crore to Rs 325 crore.

"The overall performance has however, been skewed to an extent due to the performance of banks, oil companies, IT and finance which were guided by other exogenous factors. Banks have been affected by NPA (Non-performing Assets) recognition and provisioning which finally affects profits growth," Madan Sabnavis, Chief Economist, Care Ratings said.

Edelweiss believes that the domestic earnings in fourth quarter could fall further. 

It said that the Nifty earning-per-share (EPS) growth in first three quarters of FY17 has been 3% (lower than 8% growth currently estimated). This implies 25% earnings growth in Q4FY17. 

"While the base is certainly favourable (banks are reporting losses due to asset quality review), Nifty earnings could get further downgraded," the report added.