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Festive season supports India Inc’s return to normalcy: ICRA


ICRA, the local unit of rating agency Moody’s on Wednesday said that corporate India is gradually returning to normalcy with contraction in revenues reported in the June quarter shrinking rapidly.

As per an analysis by the ratings firm, after the unprecedented sharp degree of contraction in Q1 FY2021 due to the lockdown, pace of revenue contraction reduced to 6.5% at the end of September from 32.6% in the first quarter.

Accordingly, an ICRA analysis of financial results of 587 companies in the Indian Corporate Sector (excluding financial sector entities) showed aggregate revenues growing by 34.9% in Q2 FY2021, from Q1 FY2021 levels although it remained lower by 6.5% on a Y-o-Y basis. The margins too have registered an improvement during the second quarter.

In addition, cost-control initiatives undertaken by Corporate India during the peak of the lockdown coupled with revenue recovery supported healthy margin recovery. Profit before tax margins expanded on Y-o-Y as well as sequential basis to 9.1% during the quarter.

“During Q2 FY2021, sequential recovery from Q1 FY2021 levels was visible across sectors as the restrictions eased, and some sectors were even able to bounce back to pre-Covid levels and report revenue growth on a Y-o-Y basis,” said Shamsher Dewan, Vice President – Corporate Sector Ratings, ICRA.

Among consumer-oriented sectors, although large-ticket discretionary purchases like leisure travel and lifestyle retail continue to remain on the back-burner due to risk aversion and general uncertainty, the demand in several other sectors, including passenger vehicles, two-wheelers, consumer durables etc. have bounced back over the past few months, Dewan added.

Among other sectors, commodity-oriented sectors such as cement, iron & steel and metals & mining sectors also reported sequential and Y-o-Y recovery, supported by firming up of commodity prices as well as volume expansion; and aided by a pick-up in industrial activity.

On the profitability front, India Inc. delivered a positive performance, with both operating profit and PBT margins at multi-quarter highs. Many entities aggressively rationalised costs through salary cuts, downsizing of workforce, renegotiation of rentals and interest rates, curtailment of overheads such as travel and conveyance etc. from the first quarter itself in order to survive the challenging period.

The benefits of these percolated into the second quarter, which coupled with sequential recovery in revenues, aided significant recovery in margins, ICRA noted.

Going forward, the sustainability of recovery post the ongoing festive season remains critical in determining the overall macro-economic growth, it said.

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