Key Highlights: 

  • Some of the leading industries were sugar, consumer durables – electronics, passenger cars
  • Most of the industries in Q1 FY18 were affected by the destocking goods before implementation of GST 
  • Excluding banks, IT, oil & refinery and finance companies, the net margins further contracted

 

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The first quarter ended June 30 2017 has not been a particularly good one for India Inc. An analysis of 2,108 companies done by Care Ratings show that net profit of these companies fell 15.7% as against the same quarter of last year because of uncertainties revolving around the implementation of Goods and Services Tax (GST) from July 1, 2017.

Care Ratings said, "During Q1 FY18, all companies faced the heat of the uncertainties revolving around the implementation of GST by the government as most companies were destocking goods before July 1 and operations were impacted quite markedly."

Industries related to households where demand is inelastic remained largely stable with minimal slowdown. "Services like telecom service providers were affected most perceptibly while hospitals and retailing were also on the downslide. Growth in everything related to real estate – construction, cement, engineering construction declined but was restricted as marginal signs of improvement in demand post demonetisation were seen. The finance companies however did well – both housing finance and NBFCs," the report said.

While companies with net sales more than Rs 100 crore managed to post cumulative profits in absolute values (however, lower than that in Q1 FY17), small companies posted a cumulative loss of Rs 674 crore during the quarter.

Companies with sales between Rs 100 crore and Rs 250 crore posted the highest decline of 78.1% in net profit during the quarter from Rs 870 crore in Q1 FY17 to Rs 191 crore in Q1 FY18, Care Ratings said.

Madan Sabnavis and Darshini Kansara of Care Ratings in a report on August 21, 2017, said, "The performance of a sample of 2,108 companies over the last quarter (Apr-Jun) 2017 period reveals a negative picture, with net sales showing slower growth and net profits growth showing deterioration. Net sales growth slowed down to 8.7% in Q1 FY18 after registering a growth of 9.5% in Q1 FY17."

Data show that net sales for India Inc rose 8.7%, at Rs 14,82,766 crore as against Rs 13,63,628 crore in the same three months of FY2017. Although net profit margins rose 5.9% (but saw  degrowth from 7.6%), net profits fell 15.7%, at Rs 87,475 crore from Rs 1,03,721 crore in the preceding quarter. 

Sabnavis and Kansara said, "Usually, the overall performance gets skewed to an extent due to the performance of banks, oil companies, IT and finance which are guided by other exogenous factors."

However, in Q1 FY18, after excluding the banks, IT, oil & refinery and finance companies, the performance of industry depicts similar trend as that of the aggregate sample, they said.

The duo presented data that show net profit for India Inc without the above mentioned sectors fell sharply by 24.9%, at Rs 31, 668 crore in the first three months of this financial year as against Rs 42, 184 crore in the same three months of year previous to last. 

The 156 companies in the size range of sales of above Rs 1,000 crore each, constituted 74% of total sales of the sample companies and dominated the overall performance. The next two size ranges of Rs 500-1000 crore and Rs 250-500 crore had shares of 12.1% and 7.8% respectively.

Hence, the top 368 companies in terms of sales above Rs 250 crore each accounted for 93.9% of the total sales.

Sabnavis and Kansara said, "The overall performance has been driven by the large companies that accounted for over 75% of the share in terms of total net sales. They recorded lower net profits of about 23.2% y-o-y in Q1 FY18. Those at the lower end of the size scales witnessed negative growth in both sales and profit."