Corporate profits

Corporate profits fall 54.3% as demand falls: RBI

The ongoing economic downturn has hit the corporate sector hard, with a group of 2,696 companies reporting a 54.3% decline in net profit for the second quarter ended September 2019, as “demand conditions facing the manufacturing sector weakened, with a contraction in nominal sales that became widespread”. in all sectors”.

A significant factor in the decline in aggregate earnings was the huge losses reported by Bharti Airtel and Vodafone Idea Limited (VIL) during the quarter due to Adjusted Gross Income (AGR) provisioning. While Bharti Airtel announced a loss of Rs 23,045 crore, VIL announced a loss of Rs 50,922 crore for the quarter.

While the group of 1,706 manufacturing companies saw sales fall 7.7%, profits rose 17.4%. A group of 505 companies in the service sector reported an aggregate loss of Rs 53,167 crore and 166 companies in the IT sector reported an 8.4% increase in net profit for the quarter.

The RBI said softening commodity prices led to lower input costs (including the cost of raw materials), which partially offset lower sales by manufacturing companies. The cost of raw materials for manufacturing companies fell 11.5% in the quarter.

According to data released by the Reserve Bank of India (RBI), the fall in profits has been steep, with these companies seeing a 41.7% increase in profits over the same period last year (September 2018 ). The RBI said the study is based on abbreviated quarterly financial results of 2,696 listed non-government non-financial (NGNF) companies. Sales of these companies fell 4.5% in September 2019 compared to an 18.2% increase the previous year. On Dec. 5, the RBI cut real GDP growth for 2019-20 from 6.1% in October policy to 5%, saying it can even drop to 4.9%. The lower growth rate by the RBI – which has a strong research department – ​​came after the government said GDP growth in the September 2019 quarter plunged to a six-year low of 4 .5%, the lowest since the three months ended in March. 2013. India’s industrial production contracted 3.8% in October, compared to a 4.3% contraction in September, according to Industrial Production Index (IPI) data released by the Center December 12.

“Manufacturing operating profit contracted by 11.8%, mainly due to the slowdown in production. Non-IT services companies, particularly in telecommunications, real estate and transportation and storage services, saw a sharp decline in operating profit,” said the RBI study of the private business sector. for the second quarter of 2019-20.

According to the RBI study, the operating profit margin fell slightly for manufacturing companies, although their net profit margin increased, largely due to lower tax provisions. IT companies maintained their pricing power, as evidenced by stable profit margins. Non-IT services companies, however, saw a contraction in profit margins due to heavy losses by telecommunications companies, he said. Sales growth moderated in the services sector (IT and non-IT), particularly in real estate, wholesale and retail companies.

RBI said funds raised by listed private manufacturing companies in the first half of FY20 were mainly used for capital formation and deleveraging (debt reduction). “These companies have invested in financial instruments such as investing and providing loans and advances over the past two years in the face of sluggish demand. This investment shift turned out to be widespread,” he said.