The pandemic may have hurt thousands of small businesses and killed many MSMEs, but given their financial and management muscle, the larger corporations were able to sort out their supply-side disruptions fairly quickly.
The government must continue to spend even if its balance sheet isn’t really in great shape and revenue targets are somewhat iffy, but India Inc can continue to cut costs to save every penny even if profits are at record highs. To be sure, the government needs to stimulate demand; it is not just big firms, thousands of small units also need to stay in business.
But, while calling for a stimulus in a year in which it has slashed expenditure and continues to pay a relatively low rate of tax, the corporate sector could have asked for this to be targetted exclusively at MSMEs. Indeed, the economy has contracted some 7.3% in FY21 in what would have to be the worst performance in decades, but corporate India will end the year on a high.
Even as the earnings season comes to a close, net profits for a for a sample of 1,022 companies (including banks and financials) have hit Rs 5.45 lakh crore. That’s a stupendous 56% increase over the previous year, but the jump in the PBT (profits before tax) is an even more impressive 61%.
The pandemic may have hurt thousands of small businesses and killed many MSMEs, but given their financial and management muscle, the larger corporations were able to sort out their supply-side disruptions fairly quickly. By September, even in a difficult demand environment, most companies were able to push through volumes and raised prices to pass on the higher cost of inputs; while the rally in commodity prices helped producers, IT companies successfully scaled up their operations, winning big deals.
A good many managements have mentioned in their results commentary that, over the year, they have gained share from smaller players. Interestingly, although the aggregate sales fell 2.44%—primarily due to double-digit drops in the toplines of RIL and oil-marketers—the cutback in expenses, at over 8%, amounted to a saving of Rs 4.2 lakh crore.
While interest costs came off by 5%, the tax bill fell by a whopping 32%. Thanks to the government’s largesse, the tax rate is now only 22% plus cesses; had it been the earlier rate of c35%, the government would have got an additional estimated Rs 80,000 crore on a PBT of Rs 8 lakh crore. It is no surprise then the Sensex is scaling new peaks every session.
Sadly, in a year in which loan growth collapsed to multi-year lows, especially corporate credit, the top line of financials (aggregate for the sample) was up 18%. This, in a year when MSMEs have been strapped for cash and banks were raking cheap deposits only to park them with RBI. The play-it-safe theme paid off. At State Bank of India, advances went up by a measly 5% last year, but since loan-loss provisions fell an estimated 35% the lender was laughing all the way to the bank. At Kotak Mahindra Bank, the loan-growth for the year was 1.8% while the net profits were up 17%.
It is in the GVA that we see the huge disparity between the informal and organised sectors. India’s GVA contracted 6.2% in FY21 while India Inc’s GVA—the sum of the ebitda plus employee expenses being used as a proxy—increased by 18%. Of this, the ebitda went up by 27%, employee costs by a much smaller 6.5%. The CII should contribute to the stimulus initiative; even Rs 50,000 crore would be meaningful.