Page 14 - CII Artha Magazine 2022
P. 14

Domestic Trends

        Corporate                                                                                                                 60.0      Broad Trends in Corporate Performance  18.0  External risks           chains and led to shortages
                                                                                                                                                                                                                  and delays in critical inputs
                                                                                                                                                                                                                  of raw materials. These
                                                                                                                                                                                                                  could be seen as a drag on
        Performance:                                                                                                              40.0  8.4  1.6             9.1  23.5  47.4  40.3  16.0  corporate               the corporate profitability in
                                                                                                                                                                                                                  the fourth quarter of FY22.
                                                                                                                                                                                                                  However, some sectors are
                                                                                                                                                                                        outlook mixed
                                                                                                                                                                                                                  likely to gain from the high
        Slowdown,                                                                                                                -20.0  Q4'FY19  Q1'FY20  -5.1 Q2'FY20  -3.1 Q3'FY20  -10.7 Q4'FY20  -31.4  Q1'FY21  -0.6 Q2'FY21  Q3'FY21  Q4'FY21  Q1'FY22  Q2'FY22  Q3'FY22  6.0  The spectre of the   which is likely to show up
                                                                                                                                                                                                                  global commodity prices
                                                                                                                                                                                                                  positively on their PAT
                                                                                                                                                                                        Russia-Ukraine war has
                                                                                                                                                                                                                  margins. These factors will
                                                                                                                                                                                        further raised commodity
                                                                                                                                                                                                                  keep corporate performance
                                                                                                                                                                                        prices, elevated logistics and
                                                                                                                                                                                                                  mixed for the fourth quarter
        Revival                                                                                                                Sectoral       Net Sales (% Y-o-Y)  PAT margin (%, rs)   also disrupted global supply   of FY22.
                                                                                                                                                                                        transportation costs. It has
                                                                                                                                              Source: CII Research analysis using Prowess data
                                                                                                                                                            cut into their profit margins.
        and Risks                                              Q2 AND Q3 OF FY22          FY21 (period of pandemic             Trends: A mix                On the other hand, mines and
                                                                                                                                                            metals recorded high profits
                                                                                                                                                            at the back of rising
                                                                                                                                                            commodity prices viz metals.
                                                                                                                               of good, bad
                                                                                          and nation-wide lockdowns).
                                                               SAW STEADY
                                                                                                                                                            decline in y-o-y growth in net
                                                               CORPORATE                  Corporate profitability too          and possibly                 Consumer durables showed a
                                                                                          remained strong as PAT
                                                                                                                                                            sales, while their profitability
                                                               PERFORMANCE                margin almost doubled from                                        marginally rose however,
                                                               DESPITE CONSTRAINTS        the pre-pandemic levels. PAT         ugly                         sectors like automobiles,
                                                                                          margin (per cent) rose from
                                                                                          15.7 per cent in Q1 to 16.3                                       construction and real estate,
                                                                                                                                                            construction material and
        Pre-Pandemic blues         Pandemic strikes           revival, both in terms of net   per cent in Q2 of FY22. This     The sectoral performance for   textiles saw a decline in both
                                                                                          was reflective of
                                                                                                                                                            y-o-y net sales and PAT
        E  ven before the pandemic   Poor corporate performance   sales and PAT margins. Also,   improvements in capacity      Q3 of FY22 has been mixed,   margin (per cent). This
                                                                                          utilisation and cost
                                                                                                                               both in terms of net sales and
                                                                                                                                                            signified a broader slowdown
                                   continued into the Q1 of
                                                              this was broad-based across
           struck, net sales of
        corporates were declining on   FY21 as the pandemic struck.   sectors. In part this was   optimisation.                profitability.               in the economy with declining
        a year-on-year (y-o-y) basis.   Lockdowns were imposed and   driven by a low base effect.                              Sectors like FMCG and        consumer demand cutting
        Using the data extracted from   this impeded the      But easing of lockdown      Emerging signs of cost               power have seen their net    revenues and high input &
        CMIE’s Prowess database , it   manufacturing and      restrictions and revival of   pressures                          sales go up, however rising   logistics costs eating into
        can be seen that net sales of   service-based activities. As   economic activity also played                           raw material and input costs   profits.
        the corporate sector had   people were forced indoors,   a major role. Pent up demand   However, the third quarter of
        contracted on a y-o-y basis   discretionary spending fell   from the rural areas, running   FY22 saw the PAT margin
        through Q2, Q3 and Q4 of   considerably. Global trade   down of precautionary     (per cent) moderating to 14.5
        FY20. PAT margin (per cent),   activities slowed down, hurting   savings made during the   per cent from 16.3 per cent            Snapshot of sectoral performance in Q3FY22
        too, declined from 15.2 per   both exports and imports of   pandemic, low cost of capital   in the previous quarter. This
        cent in Q2 to 9.6 per cent in   raw materials. Only pharma   as average Marginal Cost of   showed that the signs of       25
        Q4 of FY20. This was despite   sector recorded a y-o-y   Lending Rate (MCLR) came   strain seem to have emerged.                               IT & ITES      Metals and Mining
        the corporate tax rate cut   expansion in net sales in this   down by 51 basis points from   Brent crude price rose by 79   20                FMCG
        reducing the tax burden of   quarter. In order to minimise   July 2020 to June 2021 – all   per cent on y-o-y basis in         Pharmaceuticals                Total Q2FY’22
        corporates. This slowdown   losses, corporates resorted to   supported good corporate   Q3FY22, while steel prices        15                                       Total Q1FY’22
        was across the board, except   cost rationalisation and   performance.            rose by 48 per cent and                PAT Margin ( per cent)  Construction materials  Textiles  Total Q3FY’22
        for power sector which     increased efficiency, which                            aluminium by 41 per cent.               10                         Chemicals
                                                                                                                                                               Capital goods
        maintained steady growth in   pulled up the PAT margin (per   Q2 and Q3 of FY22 saw   Even gas and coking coal             5                  Consumer durables
        net sales even though its   cent) from 9.6 in Q4FY20 to   steady corporate        prices shot up multi-fold.                       Automotive  Real estate & Construction
        y-o-y profitability declined.   10.7 per cent in Q1FY21.   performance despite    These high raw material and              0 -20       0         20        40          60
        This disappointing                                    constraints. Net sales shot up   input costs ultimately                                  Net Sales (per cent Y-o-Y)
        performance was indicative of                         significantly from the previous   squeezed corporate
        overall slowdown in the    The Revival                quarter, even though the y-o-y   profitability of manufacturers,
                                                                                                                                              Source: CII Research analysis using Prowess data
        economy and weak consumer   Q2 of FY21 to Q1 of FY22   growth showed a decline due   despite sales growth in some          Note: Power sector was an outlier with Net Sales (Y-o-Y) of 268.6% and PAT Margin (%) of 11.9%
        demand.                    was marked by corporate    the low base effect from Q1   sectors.
        14   ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY                                                                                                                                               ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY  15
                                                                                                                                                                                                                  QUARTERLY JOURNAL OF ECONOMICS
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