Grumble of slowdown is getting louder for India Inc

The companies’ combined net profit declined by 10.1 per cent y-o-y during June '19 quarter against 26.2 per cent y-o-y growth a year ago.

Illustration: Uttam Ghosh/Rediff.com

The grumble of economic slowdown is getting louder for corporate India.

The combined net profit of India’s top 1,470 listed companies ex-financials and energy contracted for the third consecutive quarter year-on-year (yoy) basis during April-June 2019 quarter while net sales growth hit a three-year low.

In due course, this could cause financial trouble for many companies in the worst-affected sectors as interest liability continues to grow due to incremental borrowings in recent quarters.

The companies’ combined net profit declined by 10.1 per cent yoy during June '19 quarter against 26.2 per cent yoy growth a year ago. (See chart)

Companies’ combined interest payment was up 16.2 per cent yoy during Q1FY20 - a fifth consecutive quarter of double-digit rise.

In comparison their combined net sales were up 4.1 per cent yoy while Ebitda (operating profit) was up just 3.9 per cent y-o-y during the quarter resulting in a deterioration in interest coverage ratio - a key indicator of corporate solvency.

Companies took a hit on earnings despite benign raw materials costs.

The combined raw material cost for companies ex-financials and energy was nearly flat during the quarter leading to a 40 basis points yoy expansion in core-operating margins.

The gains were, however, negated by poor volume growth.

A lack of demand is most visible in the automotive space.

The combined net profit of auto & auto ancillary companies excluding Tata Motors was down 19.1 per cent yoy during the quarter while net sales were down 3.3 per cent - for the first time in at least three-years.

The numbers exclude tyre makers.

In contrast, FMCG companies did comparatively better with 10.2 per cent yoy growth in net sales and 14.1 per cent y-o-y growth in net profit during Q1FY20.

This has turned the sector into a safe haven for investors pulling their money out of beleaguered sectors.

Now, all eyes are on the forthcoming festive season which is expected to boost consumer spending and thus lift the demand growth at least in the consumer space.