December Results Thus Far: No Relief In Sight For Auto Companies
Revenues of India Inc have been on a decline since the last five quarters i.e. since Q2FY19
Even as the budget is under preparation, there is bleak news from the December quarter results that have come in thus far.
Out of 29 companies to announce their results thus far, 22 are smallcap companies. Data from CMIE shows the income growth in the last quarter is merely 7% compared to 8% a year ago. And the net profit is down by 1.3% compared to -2.3% a year ago.
The trend for December quarter resembles the September quarter when corporate revenues registered negative growth for first time in 14 quarters.
The decline has been largely because of the slowdown in automobile sector that has been suffering from poor monthly car sales and dealership shutdowns.
The automobile sector makes the single biggest contribution of 7% to the GDP and has perhaps suffered the longest - 10 months of falling sales. The sector has reportedly lost at least 3 lakh jobs.
Rajiv Bajaj, who heads one of the largest 2-wheelers manufacturing company Bajaj Auto, told what the government needs to do.
"It is now about one and a half years that sales or business has been down and there are always multiple reasons for something like this, but in my view the single most important reason for this state of affairs is over-regulation. It is over-regulation that is killing the industry," said Mr Bajaj , managing director, Bajaj Auto.
Revenue for the auto sector has slid in the last 5 quarters, with -25% in September quarter.
As have revenues for the steel and power sectors, and FMCG companies, according to Crisil Research report.
Analysts blame it on the weak consumption in consumer facing sectors.
Prasad Koparkar, Senior Director, CRISIL Research says, "Pain in automobiles continues owing to demand slowdown. Aggregate revenue of listed automobile players is estimated to have dropped 9-10% in the third quarter. During the quarter, revenue growth of fast moving consumer goods companies, too, is expected to have moderated 4-6%, owing to weakening rural consumption."
The revenues of India Inc have been on a decline since the last five quarters i.e. since Q2FY19 and the analysts don't expect a major change for the December quarter as well.
Madan Sabnavis, chief economist, CARE ratings told, "We need to make sure the capacity utilisation rate improves. Today if we look at Q2 data available, it is less than 70%. This is one of the reasons why fresh investment is not taking place, and that has a bearing on the overall employment scenario. Second is infrastructure, where there is less incentive for private sector to get into that space because funding options have become constrained."
This comes at a time when consumer inflation has touched a 5-year high and GDP growth has fallen to a 6-and-a-half year low at 4.5% for September quarter.
The government is stepping up the capital expenditure, but tax collection needs to grow in order to meet the budget estimates. Although the government has taking measures such as corporate tax cut, disinvestment and bank recapitalisation, the upcoming budget needs to reflect the current macro conditions as the Indian economy is facing twin problems of rising inflation and slowing growth.