Small firms in India Inc feeling Covid pinch

According to a Crisil study, large players saw muted revenue growth, while small players, which are typically low on bargaining power and cash-crunched, remained in the red

When it comes to India Inc, the smaller the company, the more excruciating the pain they suffered caused by the pandemic. For the record, less than 20 per cent of the smaller 400 companies logged revenue growth, as against nearly 35 per cent of the top 100 companies that grew in the first half of the fiscal, so suggests the latest study by Crisil Research. In fact, in consumption, and commodity-linked sectors, most large players logged growth in the second quarter, while their smaller counterparts de-grew.

If the most recent Crisil Research is to be believed, the revenue of corporate India, excluding banking, financial services and insurance (BFSI) and oil companies, which had fallen nearly 29 per cent on-year in the first, remained stable on-year in the second quarter this fiscal. While large players saw muted revenue growth, small players, which are typically low on bargaining power and cash-crunched, remained in the red.

Going by the Crisil study, among exporters, smaller textile businesses – readymade garments and cotton yarn – suffered chronic pain, while IT services showed resilience with both large and small players showing steady sequential growth.

While breaking it down among sectors, it suggested that export-linked sectors such as IT and pharmaceuticals outperformed in the first half of the fiscal due to rupee depreciation and good demand in the export markets, chemicals witnessed a 21 per cent decline owing to weak demand and lower average realisations.

The fertiliser sector's revenue dropped close to one per cent, despite robust demand, on account of reduced subsidy bill caused by lower gas pooled prices and lower nutrient-based subsidy rates, which impacted revenue of urea and non-urea players. Consumer discretionary sectors such as auto-components, airlines, hotels and consumer durables were hit hard by multiple lockdowns, which impacted sales volume, persistent supply issues and lower discretionary spend.

Quite understandably, travel-linked sectors such as airlines and hotels were the worst impacted. Their revenue de-grew nearly 79 per cent owing to travel restrictions and social distancing norms, which curtailed peoples' movement. Construction-linked sectors such as steel and cement witnessed double digit de-growth. However, their margin expanded, aided by benign costs and higher realisations. The power sector's revenue declined due to lower sales volume on account of the lockdown-induced fall in power demand. However, EBITDA margin expanded owing to lower fuel and operating costs.

The telecom industry, on its parts, witnessed healthy growth in margins in the first half due to higher average revenue per user post the tariff hikes in December last year, supported by customer uptrading (2G to 4G). EBITDA margin expanded 500-550 bps, driven by higher realisations.

In what can be billed as a ray of hope, the Crisil analysis suggested that the bounce-back in the second quarter of this fiscal, from the lows logged in the first, is expected to continue as high frequency indicators show a recovery trend for the third quarter as well.

Ritwik Mukherjee