A sharp turnaround

India Inc remains cautious after a robust Q4 performance

The results of 1,757 listed companies that have declared their results for the fourth quarter of 2020-21 indicate a sharp increase in business activity. Revenues from operations rose 17 per cent, year-on-year, to Rs 26.04 trillion. Profits after tax (PAT) rose a whopping 523 per cent to Rs 2.38 trillion. Operating profits — or PBDIT (profits before tax, depreciation, and interest) — rose 64 per cent to Rs 7 trillion. The interest pay-out dropped 6 per cent, depreciation rose 7.4 per cent, and employee costs increased 9.5 per cent. The resurgence was across many sectors. The global commodity cycle was strong, helping metals and energy companies. Consumption saw a pick-up, with better revenues in fast-moving consumer goods and automobiles. But realty and discretionary sectors like hospitality and entertainment remained depressed.

If volatile sectors such as banking, finance, oil production, and refining are excluded, operational revenues rose 21.9 per cent for the rest. PBDIT and PAT rose 58.9 per cent and 179 per cent, respectively, while interest costs fell 11 per cent and employee-related expenses rose 7 per cent. Banks saw an extraordinary 629 per cent rise in PAT, despite minimal credit growth of 5.3 per cent. Easier provisioning contributed and a turnaround in Canara Bank, Axis Bank, Union Bank, and Bank of India saw this quartet register Rs 5,490 crore in combined PAT, versus combined losses of Rs 10,786 crore a year ago. The story was similar for 163 listed non-banking financial companies (NBFCs), which saw combined PAT rise to Rs 19,977 crore from combined losses of Rs 2,601 crore a year ago. Crude oil, refining, and marketing had combined extraordinary losses of Rs 19,241 crore a year ago, and combined PAT of Rs 45,203 crore this quarter.

In the auto sector, revenues rose 39 per cent while losses dipped. Tata Motors and M&M saw a turnaround. The tractor segment continued to do well and two-wheeler majors Hero and Bajaj saw strong gains. Auto ancillaries saw a 36 per cent rise in revenues and 510 per cent rise in PAT. Forgings, tied to the auto industry, saw a 38 per cent rise in revenues and 150 per cent rise in PAT. All this tied in with better performance by non-banking financial companies. There was a recovery in capital goods with revenues moving up 31 per cent and PAT from combined losses of Rs 433 crore to a PAT of Rs 2,636 crore. A strong metals cycle drove profits in steel with revenue gains of 45 per cent and PAT rise of 1,300 per cent, due to a big turnaround in Tata Steel. Non-ferrous metals also saw rising revenues and PAT. So did the mining sector. IT and pharmaceuticals delivered steady performances with single-digit revenue growth and double-digit PAT growth.

Is this sustainable? The second wave had a negative impact on corporate India, with continuing fixed overheads and negligible revenues. But Q1 2021-22 will also benefit from base effects. The more alarming factor is rising inflation, mainly because of the cost-push from the commodity cycle, and also supply chain disruptions. Consumption remains patchy as the second wave impacted rural India quite extensively. The low credit expansion shows India Inc is cautious, with good reason.