Resilient First Quarter FY22 Corporate Earnings, Says India Ratings

India Ratings and Research (Ind-Ra) believes that the stable corporate performance amid the second covid wave during 1QFY22 has raised optimism for a faster-than-expected recovery. However, the pressure on top line has largely been mitigated by a reduction in overhead costs, especially labour cost. to maintain a healthy bottom-line.

"In light of such weak wage growth, the agency believes salaried and wages earners would be a drag on the overall recovery in the medium term owing to the tepid recovery of household consumption. Moreover, an environment of pandemic-led uncertainty and elevated inflation could impact the level of spending and hence the overall demand," the rating agency has said.

"The analysis is based on a study of the standalone financials of 2,036 non-financial corporates. The entre sample set has been divided into eight buckets according to the size of the annual revenue in FY19. The buckets are- top 10, 11 to 25, 26 to 50, 51 to 100, 101 to 250, 251 to 500, 501 to 1,000 and 1,001 to 2,036. The median annual revenue of the last bucket is around INR100 million," it has noted.

Encouraging Corporate Resilience

Ind-Ra's analysis of 2,036 corporates suggests that the number of companies posted losses in 1QFY22 has been lower than in 1QFY21. Out of the 2,036 entities, 523 entities posted losses in 1QFY22 compared to 986 entities in 1QFY21. Ind-Ra believes this has largely driven by limited the restriction imposed on business activities. Corporates too have learned and implemented various measures to combat this kind of situation.

Although the overall trend is encouraging, it is not broad based. While the top three buckets have limited number of entities making losses, the last two buckets (501 to 1,000 and 1,001 to 2,036 entities) have 23% and 33% loss-making entities, respectively. This is compared to around 50% entities in both the buckets in 1QFY21, reflecting the ongoing pressure on smaller entities.

Nonetheless, the overall corporate performance has been reasonably encouraging and could continue to be so with some moderation in margin and cash flows.