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Corporate profits fall 54.3 per cent as demand drops: RBI

A big factor in the drop in aggregate profits has been the huge losses announced by Bharti Airtel and Vodafone Idea Limited (VIL) during the quarter on account of provisioning for adjusted gross revenue (AGR).

Written by George Mathew , Sandeep Singh | Mumbai, New Delhi |
Updated: December 20, 2019 3:46:24 am
Corporate profits, Corporate profits fall, Corporate profits decline, RBI While the group of 1,706 companies in the manufacturing sector saw their sales decline 7.7 per cent, their profits grew by 17.4 per cent.

The ongoing economic slowdown hit the corporate sector badly with a group of 2,696 firms reporting a 54.3 per cent fall in net profit for the second quarter ended September 2019 as “demand conditions facing the manufacturing sector weakened, with contraction in nominal sales that became broad based across industries”.

A big factor in the drop in aggregate profits has been the huge losses announced by Bharti Airtel and Vodafone Idea Limited (VIL) during the quarter on account of provisioning for adjusted gross revenue (AGR). 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 companies in the manufacturing sector saw their sales decline 7.7 per cent, their profits grew by 17.4 per cent. A group of 505 companies in the services sector had an aggregate loss of Rs 53,167 crore and 166 companies in the IT sector announced a 8.4 per cent rise in net profit for the quarter.

The RBI said softening of commodity prices resulted in lower input costs (including cost of raw materials), which partly offset the decline in sales of manufacturing companies. The raw material cost for manufacturing companies fell 11.5 per cent during the quarter.

According to data released by the Reserve Bank of India (RBI), the fall in profits was steep as these companies had posted a 41.7 per cent rise in profits in the same period of last year (September 2018). The RBI said the study is based on abridged quarterly financial results of 2,696 listed non-government non-financial (NGNF) companies. Sales of these companies fell by 4.5 per cent in September 2019 as against a rise of 18.2 per cent in the previous year. On December 5, the RBI slashed the real GDP growth for 2019-20 downwards from 6.1 per cent in the October policy to 5 per cent, saying that it can even go down to 4.9 per cent. The lowering of growth rate by the RBI — which has a strong research department — has come after the government said the GDP growth in September 2019 quarter had plunged to a six-year low of 4.5 per cent, the lowest since the three months ended March 2013. India’s industrial output contracted 3.8 percent in October, against a 4.3 per cent contraction in September, according to the Index of Industrial Production (IIP) data released by the Centre on December 12.

“Operating profit of the manufacturing sector contracted by 11.8 per cent, mainly due to the production slowdown. Non-IT services companies, especially in telecommunication, real estate and transport and storage services, registered sharp declines in operating profit,” said the RBI study on private corporate business sector for the second quarter of 2019-20.

According to the RBI study, the operating profit margin dipped marginally for manufacturing companies, though their net profit margin increased, largely on account of lower tax provisions. IT companies maintained pricing power as reflected in stable profit margins. Non-IT services companies, however, registered a contraction in profit margins due to heavy losses recorded by telecommunication companies, it said. Sales growth moderated in the services sector (both IT and non-IT), especially in real estate, wholesale and retail trade companies.

RBI said that the funds mobilised by listed private manufacturing companies during the first half of FY20, were mainly used for fixed assets formation and deleveraging (reduction of debt). “These companies were investing in financial instruments such as investment and extending loans and advances during the last couple of years in the face of subdued demand. This shift in investment was found to be broad based,” it said.

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