 "corporate earnings")
Care Ratings said on Tuesday that the first half of current fiscal (H1 FY20) shows that corporate earnings have been weak indicative of an overall slowdown in various industries and the economy.
Based on a sample of 2,398 companies sourced from Ace Equity, it is observed that there is a perceptible decline in growth of half-yearly net sales and operating profits while net profits in H1 FY20 have contracted despite a number of companies availing the benefit of the optional corporate tax cut announced by Finance Minister Nirmala Sitharaman as one of the measures to revive the economy.
In H1 FY20, net sales of the sample were virtually flat, growing at a rate of 0.4 per cent as against growth of 17.3 per cent in the corresponding period year ago. A snapshot of Q2 FY20 numbers shows that aggregate topline and net profits of these sample companies have contracted from a year ago.
A snapshot of 2,020 companies which excludes banks and finance companies shows net sales contracted by 2.7 per cent in H1 FY20 as against a growth of 19.1 per cent in the corresponding period a year ago.
Total expenditure of these companies registered contraction in total expenditure on account of contraction in the cost of raw material component, Care Ratings said.
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The decline in raw material cost can be juxtaposed with inflation in WPI manufacturing which too has moderated to 0.7 per cent in H1 FY20 as against 4.1 per cent in H1 FY19.
The growth in power and fuel cost witnessed a significant moderation from 16.5 per cent in H1 FY19 to 0.1 per cent in H1-FY20. The same can be associated with the decline in WPI-fuel from 15 per cent to minus 1.8 per cent during the same reference period.
Interest expenses grew by 10.5 per cent in H1 FY20 which was marginally lower compared with corresponding period year ago. Despite back-to-back rate cuts aggregating 135 basis points since February by the Reserve Bank of India, the weighted average lending rates on outstanding loans have remained steady in the range of 10.42 to 10.45 per cent during April to September.
Size-wise analysis shows that the large corporates (having net sales of Rs 10,000 crore) accounted for significant amount of the contraction in both top-line and bottom-line at the aggregate level. Also, on the other hand, the net sales of small companies (having net sales below Rs 100 crore) registered significant contraction during H1 FY20.
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