Low consumption hits India Inc earnings in Q4

Slow growth

Slowdown in consumption across sectors, rural distress and liquidity crunch have hit the performance of India Inc during the fourth quarter of last fiscal.

Corporate revenues of select companies across key sectors grew by a mere 10%, the lowest in the past six quarters, according to compilation of data by rating agency ICRA. The data is available for 642 companies selected from FMCG, consumer durables, telecom, cement and automobiles among others.

Prior to this, a similar low-growth scenario was witnessed two years ago in 2017 when the shoddy implementation of Goods and Services Tax (with effect from July 1, 2017) had caused a slowdown in the economy.

The current slowdown is mainly attributed to the liquidity crunch, subdued rural demand and uncertainty surrounding the elections, that ultimately took a toll on consumption in the economy as people deferred purchases. The liquidity crunch that crippled the Indian financial systems post-IL&FS fiasco from September 2018 onwards resulted in consumers deferring their purchases.

The consumer-oriented sectors (automobile OEMs, consumer durables, FMCG, etc) witnessed tepid volume growth which resulted in companies in these sectors posting a paltry 3.8% growth in revenues during the fourth quarter ended March 2019 on a year-on-year basis, the data analysed by ICRA reveals.

“The weakness in the consumer-linked sectors was visible across most consumer-oriented sectors such as passenger vehicles, two-wheelers, consumer durables and FMCG since the second half of FY2019. The decline in consumer sentiment was visible in both urban and rural segments,” Shamsher Dewan, vice-president — Corporate Sector Ratings, ICRA said.

As a result, the EBITDA margins of companies stood at their lowest in the past 10 quarters. The EBITDA margin of the companies in the ICRA’s sample space stood at 16.6% in the March quarter, showing a decline for the third consecutive quarter.

The operating profit margins (OPMs) of the airline industry were the worst hit — dropping to -0.9% from 11.8% a year ago. The decline in margins was because of rise in fuel costs and a stronger dollar. Almost 40% to 50% of the total cost incurred by the airlines is on fuel.