Corporate Profit In FY21 Shows Significant Improvement Due To Low Interest Cost, Expenditure, Tax: SBI Ecowrap

A man stands in front of an electronic ticker board showing stock information figures outside the Bombay Stock Exchange (BSE) in Mumbai, India. (Photographer Dhiraj Singh/Bloomberg)

Corporate Profit In FY21 Shows Significant Improvement Due To Low Interest Cost, Expenditure, Tax: SBI Ecowrap


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SBI Ecowrap Report

It has been a roller coaster ride in the corporate space in FY21 and even FY22. Even as around 4,000 listed entities for FY21 reported 5% decline in top line, Ebitda and PAT grew by 24% and 105% respectively over FY20. Most importantly, 15 sectors have now reduced loan funds by around Rs 2.09 lakh crore during pandemic year FY21. Sectors such as Refineries, Steel, Fertilisers, Textiles, Mining, etc. have reduced their loan funds in the range of 6% to 64% in FY21.

The reduction in effective Tax rate (ETR) in FY20 coupled with a prolonged period of low interest rate regime fueled by the pandemic seem to have been a blessing in disguise for India Inc. during pandemic year. Effective tax rate for the said listed entities declined from 35% in FY20 to 26% in FY21, though actual tax paid increased by more than Rs 50,000 crore. Many sectors including Engineering, Realty, Automobiles, Trading etc. had reported effective tax rate reduction ranging from 1%-24% in FY21 as compared to FY20.

Despite this, tax collections have been impressive in FY22 with corporation tax revenue at record highs. Our analysis shows that cut in taxes in FY20 has contributed 19% to the top line of sample sectors during pandemic with sectors like cement, tyres and consumer durables showing significant contribution even in excess of 50%.

An extended period of low interest rate have also helped companies in massive deleveraging and contributed on an average 5% to the overall top line. Sectors like Consumer Durables, Healthcare and Cement have benefitted the most.

In terms of expenditure reduction, the overall contribution on top line has been as much as 31% with most companies finding out new ways to navigate through the pandemic. Sectors like Apparel and Refineries have cut cost by as much 107% on an average. Expenditure has, however, climbed up in sectors like metals, agro chemicals among others reflecting the increase in input costs with a surge in global commodity prices. Employee costs have been cut on an average by 3% in FY21. The maximum cut in employee costs have been in sectors facing consumers.

Interestingly, with robust direct tax collections, especially corporation tax, in Q1FY22 we believe that the gap between GVA and GDP will be large as the GDP growth in Q1 FY22 would be buoyed by the taxes.

With the RBI hinting at an extended period of accommodative policy, we believe this augurs well for better corporate results and hence robust tax collections going forward and the beginning on a new investment cycle the sooner we are able to reach a critical mass of vaccination.

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