India Inc on recovery path from Demo, GST shocks: CARE

India Inc’s third quarter ended December 2017 (Q3FY18) financial performance is half way through, and both bottom-line and top-line have recorded positive growth. 

A performance survey of somewhat 1,572 companies, excluding banks during Q3FY18, was carried out by CARE Ratings. 

As per the agency, India Inc in Q3FY18 over Q2FY18 reveals positive picture with net profit growth showing improvement and reaching Q3-FY17 levels, while growth in net sales have recovered but would take time to reach earlier level. 

In Q3FY18, the aggregate set of companies has reported 9.7% growth. However, this growth rate is lower compared to the rate of 19% a year ago the same period. 
 

The Rating agency highlights that last year, despite demonetization, industry was able to report 19% y-o-y growth during the third quarter. However, post-December with demonetization impact being fully felt with slower manufacturing activity aggregate performance of companies has been on a declining trend. 

It needs to be noted that Q3FY18 revenue is still better compared to Q2FY18 rate where growth was just 6.5%. 

With the implementation of Goods and Services Tax (GST) growth post July 2017, India Inc’s sales were affected with two successive low growth rates. 

Meantime, net profit have managed to register growth rate of 13.6% in Q3-FY18 which is near the lines to that in Q3 FY17. 

Net profit of India Inc which stood at 13.8% in Q3-FY17 dropped to 1.7% in Q4FY17, and even entered into negative territory of 4.3% in Q1FY18. Such can be attributed to the implementation of GST where companies had gone in for de-stocking. 

Recovery appears palpable even in terms of profit margin. 

Interest cover (ratio of PBDIT/interest) has been calculated for the sample of 1,305 companies (excluding banks and finance). Interest cover was the highest in Q3 FY18 at 7.34 times over the last 7 quarters, as per CARE. 
 

Talking on the overall performance, economists at CARE said, “Nonetheless, in Q3-FY18, we can see the net sales of aggregate set have witnessed an increase. However, the industry is expected to take some time before it reaches the pre-demonetization levels in terms of sales growth once the GST disruption settles.” 

As for PAT, they said, “it can be said that the industry is on the turnaround path post demonetization and GS. However, in terms of net sales the industry still needs some time to get back on track.”