India Inc’s profits plunged by 15.7 per cent to Rs 87,475 crore in the first quarter of the current fiscal, largely owing to destocking of goods by companies before execution of GST regime from July 1, a leading rating agency said in a report. Small companies bore the brunt of the GST regime with profits plunging as much as 78 per cent in the quarter.
“The overall performance has been driven by the large companies that accounted for over 75 per cent of the share in terms of total net sales. They recorded lower net profits of about 23.2 per cent y-o-y in Q1 FY18. Those at the lower end of the size scales witnessed negative growth in both sales and profit,” Care Ratings said in a report. Net sales growth was lower at 8.7 per cent to Rs 14.82 lakh crore in Q1 FY18 after registering a growth of 9.5 per cent in Q1 FY17.
According to an analysis of 2,108 companies by Care Ratings, 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. 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, it said.
“Companies with sales between Rs 100 crore and Rs 250 crore posted the highest decline of 78.1 per cent in net profit during the quarter from Rs 870 crore in Q1 of FY17 to Rs 191 crore in Q1 of FY18,” it said.
Industries related to households where demand is inelastic remained largely stable with minimal slowdown. However, pharmaceuticals and drugs industry saw a sharp dip on account of lower exports. “Consumer industries like textiles and durables which get extended to auto segment except tractors witnessed an improvement as players were destocking inventories before implementation of GST which led to higher sales,” the report said.
In the case of tractors a good monsoon was a factor pushing growth. “Tyres and ancillary growth may be attributed to the ‘replacement’ demand more than OEM which slowed down during the quarter. Within non-discretionary consumer goods consumer foods, household and personal goods segment as well as drugs and pharmaceuticals were affected,” it said.
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.
“Most of the industries in Q1 FY18 that have posted lower growth numbers were affected by the destocking goods before implementation of GST from July 1, 2017 by the government. The effect was felt most of the companies as we can also see from the financials. This led to slower movement in the consumer durables, industrial activity, etc which led to comparatively lower sales during the quarter,” it said.
As many as seven industries reported net loss, while 33 segments reported lower growth in net profit on year-on- year basis during the quarter ended June 2017. In terms of net sales, 40 industries saw positive growth in sales in the first quarter of 2017-18. Some of the leading industries include sugar, electronics, passenger cars and tractors, capital goods, metals, NBFCs, hotels, resorts and restaurants, mining, refineries, plastic products, industrial gases and fuels.