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Q3 Results: India Inc.’s Revenue Contracts In The Worst Show In 16 Quarters, Says ICRA 

Consumer-linked sectors like automobiles saw a steep slump even through the festive season. 

A man rides a bicycle past a building under construction stands the site of The World Towers, a luxury residential project developed by Lodha Developers Ltd., left, in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)
A man rides a bicycle past a building under construction stands the site of The World Towers, a luxury residential project developed by Lodha Developers Ltd., left, in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

India Inc.’s revenue contracted in October-December, its worst performance in 16 quarters, as consumer demand waned and the economy continued to slow down, according to ICRA Ltd.

Revenue fell 0.1 percent year-on-year in three months ended December, ICRA said in a report on its analysis of results of listed companies (excluding financial sector). Continuing the trend since the beginning of the fiscal, Shamsher Dewan, vice president, corporate ratings, at ICRA, said in the report that the financial performance of Indian corporates in the third quarter was characterised by weakness in consumer and commodity-linked sectors.

The nation’s consumption-reliant economy, third largest in Asia, has gone from having a world-beating growth of about 8 percent about three years ago to an estimate of 5 percent in FY20, the slowest pace in more than a decade. Consumer-linked sectors like automobiles saw a slump even through the festive season as customers cut spending.

Infrastructure, housing, and industrial sectors were hurt by the slow release of funds and cancellations of orders in several pockets, ICRA said. As a result, steel production—which relies on orders from the infrastructure and automotive sectors— contracted 6 percent on a year-on-year basis, it said.

Information technology and aviation, however, helped partly offset the overall slowdown, the report said. The software services sector’s revenue grew 8 percent in the quarter ended December, supported by a weaker rupee. Aviation too grew on the back of growing passenger traffic and capacity addition by select airlines.

Cost Cuts Help

Indian companies’ earnings rose from a year earlier as well as the previous quarter as they cut costs to counter the slowdown, ICRA said. Still, earnings were weighed down by weak realisations in the commodity sector and a negative operating leverage, the rating agency said. That impacted the profit-before-tax margins, which remained more or less unchanged on an annual basis at 9.4 percent.

A revival in the corporate sector’s performance will depend on an improvement in consumer sentiment and a pick-up in infrastructure investments, which would support demand in the commodity sector, according to Dewan. The recent budgetary announcements towards improving rural sentiment and infrastructure investments may offer impetus, he said.