In Charts: What RBI Data Tells Us About Corporate Performance Amid Covid-19

The Covid-19 crisis threw the economy and corporate balance sheets into disarray. With sales falling sharply, firms cut back on raw material purchases and staff costs to limit the hit to profitability.

This was reflected in the quarterly earnings for the April-June quarter and has now been captured in the RBI’s study of 2,531 listed non-government non-financial companies. The quarterly study shows, not entirely surprisingly, that small firms fared worse than larger units, that workers across the non-IT services sector took the worst hit and that while sales across a number of sectors plummeted, profits and margins were impacted to a lesser degree.

Companies Cut Staff Costs Quickly

The Covid-19 crisis prompted the country’s manufacturing and non-IT services to cut staff costs in double digits, showed data released by the Reserve Bank of India on Tuesday.

Across all companies included in the survey, a 3.1% drop in staff costs was reported compared to a 5.5% increase in the previous quarter and a 10.3% increase in the year-ago quarter. The aggregate masks a variation across sectors and industries.

• Across manufacturing companies in the study, staff costs were cut by 10.1% compared to a 2.1% increase in the previous quarter.
• Non-IT services companies cut staff costs by 11% compared to a 0.8% decline in the previous quarter.
• In contrast, IT companies saw a 6.2% increase in staff costs in Q1 FY21 compared to a 10.4% increase in the last quarter of FY20.

Smaller Companies Hurt Much More Than Larger Units

The data shows that companies took an immediate and sharp hit to sales, which they balanced out by reducing expenses. The lower expenditure was a consequence of lower spending on raw material and cut in employee costs.

The Covid hit was felt disproportionately by smaller firms while those with sales more than Rs 1,000 crore saw a smaller impact.

• Units with sales of less than Rs 25 crore reported an over 83% drop in sales, while expenditure was slashed 72.7%
• Firms with sales of over Rs 1000 crore saw a near 32% drop in sales with expenditure being slashed 34.3%
• All taken together, sales were down 37% and expenditure was down 38.7%
• EBITDA for all sets of companies taken together dropped 32.4% with smaller firms taking a bigger hit than larger units.

When seen sectorally, aggregate sales of manufacturing companies fell 41.1% in the first quarter of FY21, following a 15.6% decline in the fourth quarter of the last financial year. Non-IT services companies saw a 41% drop in sales.

Except for a handful of sectors like IT services, pharmaceuticals, sugar and telecommunications, all sectors saw a sharp fall in sales.

Pricing Power Maintained

The RBI data also charts key financial ratios, which show that companies saw a drop in interest coverage ratio and cash coverage ratio as sales fell.

At the same time firms managed to maintain Ebitda margins and non-IT services firms even saw an expansion.