Interest Coverage Ratio For Manufacturing Sector Improved In Q3: In Charts
Workers labor on reinforcing steel at a flyover construction site in Patna, Bihar.(Photographer: Anindito Mukherjee/Bloomberg)

Interest Coverage Ratio For Manufacturing Sector Improved In Q3: In Charts

Sales and interest coverage ratio across manufacturing companies improved in the quarter ended December, even though non-IT services firms continued to feel the pressure of the Covid-19 crisis.

The quarter also saw staff costs for manufacturing and IT services firms rise. Non-IT services, part of which are high contact services, however, saw a slower pace of normalisation.

The findings are based on the Reserve Bank of India’s compilation of financials for 2,692 listed non-government non-financial companies.

Manufacturing Sector

The organised manufacturing sector saw the quickest rebound as the nationwide and state-level lockdowns reversed.

Sales growth across the sector improved to 7.4% in the third quarter compared to a decline of 4.3% in the previous three months. Growth in Q3 FY21 was also much improved over a contraction of 6.1% a year ago.

As sales improved, raw material and staff costs rebounded.

Raw material costs rose 6.4% in the third quarter after a decline of 9% in the preceding three-month period. Staff costs rebounded, rising 4.6% over a year ago in the third quarter, compared with a decline of 4.8% in Q2.

Interest costs softened, leading to a sharp increase in interest coverage ratio to 6.6 times from 4.6 times in the previous quarter.

The recovery was led by iron and steel, automobiles, cement, chemicals and pharmaceuticals companies, the RBI said.

Non-IT Services Remained Weak

The non-IT services sector, which includes high contact services such as hotels and trade, remained the weakest in the third quarter.

Sales contracted 5.7% over a year ago for this segment. As a result, salaries remained under pressure and staff costs were down 15.1% over a year ago. Ebitda rose 1.1% over a year earlier.

Within this category, telecommunication, real estate and trade sector companies showed improved performance, the RBI said.

IT services, which were the least impacted by the Covid-19 crisis, remained steady. Sales rose 5.2% in the three months through December compared with 3.6% in the quarter before. Ebitda growth spiked to 20.9% in the October-December period from 7.2% in the previous three months.

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