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Higher costs offset better sales for India’s listed corporate sector in 1QFY18
RBI data confirm sharp slowdown in manufacturing GVA growth
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13 October 2017
The Economy Observer
Reserve Bank of India (RBI) data for private corporate sector (2,744 listed non-government non-finance companies)
indicate that aggregate sales and expenses grew at 18-quarter high of 7.6% and 11% YoY, respectively in 1QFY18. At
3.4pp, the gap between expenses growth and sales growth was the highest in five years.
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Interest payments declined 1.5% YoY for the second consecutive quarter. Interest coverage ratio was 1x or lower for
four industries – textiles, construction, iron & steel and telecommunication.
Owing to the sharper rise in raw material expenses vis-à-vis sales, operating profits contracted by 10% YoY, marking the
first decline in four years. EBITDA margin dropped to a 9-quarter low of 17.2%.
Finally, manufacturing GVA growth – as per the RBI sample – declined by a sharp 9.6% YoY in 1QFY18, because of a
sharp decline in the manufacturing sector’s net profit. This confirms the slowdown in GDP growth in 1QFY18.
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Corporate sales in 1QFY18 grew fastest in 18 quarters…
Sales of the private
corporate sector increased
by 7.6% YoY, the fastest
pace in 18 quarters
As per RBI data, sales of the private corporate sector (comprising financial results of
2,744 listed non-government non-finance companies) increased by 7.6% YoY, the
fastest pace in 18 quarters
(Exhibit 1).
The pick-up in growth was driven by a
turnaround in sales growth of the non-IT services sector, which had contracted in
each of the last four quarters. The construction and electricity & gas supply sectors
also witnessed an improvement in sales growth
(Exhibit 2).
Although growth in sales
of the manufacturing sector decelerated slightly to 8.9% in 1QFY18 from 10.2% in
4QFY17, it continued to be healthy. ‘Petroleum products’, ‘iron & steel’, precious &
non-ferrous metals’, ‘fabricated metals’, ‘wholesale & retail trade’, ‘mining &
quarrying’ posted healthy growth in sales, aided by a favorable base.
Exhibit 2:
Industry-wise sales growth (% YoY)
8
Manufacturing
Food pdts & beverages
Textiles
Petroleum Products
Fertilizers & Pesticides
Iron and Steel
Construction
Services (other than IT)
Wholesale & retail trade
Telecommunication
IT services
Share in 1QFY17 4QFY17 1QFY18
sales (%)
Sales (% YoY)
68.9
(1.0)
10.2
8.9
5.5
0.1
(3.9)
5.6
4.2
(1.7)
6.9
7.3
8.2
(18.2)
33.5
19.4
1.2
(16.9)
(16.2)
7.2
7.9
(3.4)
26.0
20.6
5.3
2.8
(0.4)
6.4
11.2
(0.3)
(2.9)
4.1
2.9
(19.9)
0.7
24.4
3.3
7.7
(11.4)
(13.2)
9.2
11.2
4.8
2.9
Sales
Expenses
(pp)
Exhibit 1:
Expenses grew faster than sales in 1QFY18
16
Difference (RHS)
8
4
0
(% YoY)
(8)
1QFY13
1QFY14
1QFY15
1QFY16
1QFY17
0
(4)
1QFY18
To compute the growth rates in any quarter, a common set of
companies for the current and previous period is considered
Source: Reserve Bank of India (RBI), MOSL
The growth in sales in 1QFY18 was led entirely by larger companies. Companies with
annual sales of INR10b and above posted growth of 9.2% in the quarter
(Exhibit 3),
while the smaller companies (with sales less than INR10b) witnessed a 3.1% decline.
Based on paid-up capital (PUC), bigger companies (with PUC of INR250m and above)
– which account for four-fifth of total sales – grew faster, by 7.8%
(Exhibit 4),
as
against 6.7% growth in companies with PUC of less than INR250m.
Nikhil Gupta – Research analyst
(Nikhil.Gupta@MotilalOswal.com); +91 22 3982 5405
Rahul Agrawal
– Research analyst
(Rahul.Agrawal@motilaloswal.com); +91 22 3982 5445
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.