Still Some Worries

Editor's note by Prosenjit Datta

By Prosenjit Datta  
Monday, May 14, 2018

Though the country's GDP growth remained firmly over 6 per cent - no mean achievement - in the past three years, times were not particularly good for corporate India, barring a handful of sectors. The twin shocks of demonetisation and rollout of GST showed up in anaemic revenue growth. In the past three years, the 8,948 companies - listed and unlisted - that form the universe of the ACE equity corporate database used for this study, showed that revenue grew at a CAGR of 3.9 per cent. Of the three years, 2016 was the worst year, with annual revenues for the group as a whole actually declining by 0.5 per cent. When research head Niti Kiran made a shortlist of companies (after excluding banks, finance and trading companies), only 647 companies made the list. Even in these group of 647 companies, not all showed revenue or profit growth every year. The biggest companies - the oil companies - in fact, showed better profit growth, but had revenue declines because of lower crude oil prices.

We had tweaked the methodology marginally this year for our study - starting with the entire universe of companies, listed and unlisted in the database with results available for all the years, and then dividing it into four groups according to size in order to see who were the fastest growing companies in each of the three groups. We did this because we wanted to ensure that the base effect did not skew the list.

A close look at the results of the study reveals interesting details. Except for a few companies, most showed that even where revenues were growing robustly, operational profits were coming down. Costs were going up, but because of tepid demand, it could not be passed on in entirety to customers.

Have we put the last two year's shocks firmly behind? Economists I spoke to said that while the worst seemed to be over, there were still some worries. On the macro front, the GDP growth was recovering and 7 per cent plus for the next few years was expected, while inflation remained under control. The IIP numbers showed decent recovery, though the latest numbers show a slowing of growth. The PMI in manufacturing and services is also showing a recovery.

But export is still to grow at pre-2008 levels, the trade deficit and current account deficit is going up, and there are worries on other fronts.

Corporate sentiment is also mixed. While the hard bidding for companies like Electrosteel, Essar Steel, and Binani Cement shows an interest in picking up good assets, not enough fresh capacity creation was taking place. Job growth is also expected to remain tepid.

Things might be getting better slowly, but we are by no means out of the woods completely.

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