RBI article captures corporate India’s turnaround story in FY21

With almost all companies declaring their results of Q4, a recent Reserve Bank of India article has compiled the FY21 results that show only two sectors – information technology and pharmaceuticals – registered positive growth in sales in all the four quarters.

The results of all listed non-financial companies were compiled and divided into 15 different sectors.

FY21 that will go down in history for ushering in unprecedented economic disaster will also be reckoned as a year when corporate India staged a remarkable recovery except one or two sectors.

15 sectors
The sectors are auto and ancillaries, chemicals communication services, construction & real estate, construction materials, consumer goods, hotels & tourism, information technology, machinery, metals & mining, oil & gas, pharmaceuticals, textiles, transport services. The companies that did not fall into these 14 categories were lumped into ‘others’.

As many as nine sectors out of the 15, registered a dip in Q1, but sales recovered to positive territory in the other three quarters. These are auto and ancillaries, chemicals, communication services, construction & real estate, construction materials, consumer goods, metals & mining, transport services and ‘others’.

25%+ dip in Q1
The most severe impact was sustained by the hotels and tourism sector that contracted by as much as 77.5% in Q1.

As many as eight sectors suffered more than 25% dip in sales in Q1. These are auto and ancillaries, construction & real estate, construction materials, hotels & tourism, machinery, metals & mining, oil & gas, and textiles.

Communication
Among the sectors that suffered shrinkage in sales, communication services was the least impacted in Q1, the quarter that bore the brunt of the nationwide lockdown. It suffered a dip of 2.2% in sales.

Companies in the hotels and tourism space were the worst hit recording contraction in sales in all four quarters, the rate of degrowth being 77.5% (Q1), 58.8% (Q2), 5.4% (Q3) and 37.8% (Q4).

More than 50%
Other sectors suffering more than 50% contraction in sales in Q1 were auto & ancillaries (66.3%), textiles (67.6%) and machinery (54.3%).

Oil & gas and textiles recovered after contraction in sales in the first three quarters to register sales growth in Q4. While textiles witnessed a growth of 32.8%, sales in oil and gas grew by 9.2% in the final quarter of FY21.

Pink of health
The pharma sector recorded 15.9% rise in sales in Q1, making the most of the pandemic. IT sales rose by 4.3% during the same period.

The pharma sector was the only one to register double digit sales growth in all the four quarters – 15.9% (Q1), 16.5% (Q2), 15.9% (Q3) and 20.7% (Q4).

IT slower
The rate of growth in IT was lower – 4.3% (Q1), 4.5% (Q2), 6.3% (Q3) and 8% (Q4).

The turnaround in sales in quite fast across sectors. While 13 sectors out of 15 recorded shrinkage of sales in Q1, the dip continued in only four sectors in Q2. These were hotels & tourism (58.8%), machinery (7.3%), oil & gas (26.9%) and textiles (28.4%).

In Q3 only hotels & tourism and textiles continued to be hit by declining sales while machinery and oil & gas recovered to the growth territory.

In Q4, sales of only hotels & tourism sector remained in the red zone.

Spectacular run
The most spectacular reversal of fortunes was recorded by the auto sector that jumped from a 66.3% dip in sales in Q1 to growths of 7.5%, 20.5% and 35% in Q2, Q3 and Q4, powered by a release in pent-up demand of consumers who also realised the important of travelling in isolation to avoid the infection.

Profits zoom
Analysing the performance of 288 listed Indian companies in all the quarters, the RBI report found that net profits made a spectacular recovery from (-)39.7% in Q1 to 8.8% in Q2, 38.4% in Q3 and 80.1% in Q4 riding on the back of lower wages due to retrenchment and lower financial costs such as interests.

Net sales on these companies was in the negative zone in Q1 and Q2 at 30% and 4.7%, but moved to growth territory recording 0.6% and 17.4% in Q3 and Q4 respectively.

Expenditure drops
The expenditure of these companies dipped in all the first three quarters with small growth in the last one – (-)27.8%, (-)7.3%, (-)3.3% and 9.7%.

As a result, operating profit zoomed in Q2, Q3 and Q4 after a disappointing Q1. The rate of growths in the four quarters stood at (-)49.6%, 19.3%, 37.1% and 114.9%.

Silent transformation
“Corporate performance is undergoing a silent transformation as if it is positioning itself for a turn in the business cycle. The initial set of earnings results declared by 288 Indian listed companies (constituting around 51 per cent of the market capitalisation of all listed non-financial companies) for Q4:2020-21 marks a distinct shift from the previous quarters, with top-line growth gaining prominence in a broad-based manner,” said the article.

“Sales emerged out of a prolonged contraction, fuelled by improvement in volumes, higher realisations and favourable base effects. Raw material costs grew sharply but other operating expenses such as wages and salaries grew at a slower pace as benefits from economies of scale set in and interest expenses declined. Thus, notwithstanding elevated raw material costs, the growth of operating profits and net profits was higher than in preceding quarters,” the article went on.