Covid package fuels India Inc's profits

Even as around 4,000 listed entities for FY21 reported five per cent decline in top line, EBIDTA and PAT grew by 24 per cent and 105 per cent respectively in FY21 over FY20. Most importantly, 15 sectors have now reduced loan funds by around Rs2.09 lakh crore during pandemic year FY21. Sectors such as refineries, steel, fertilisers, textiles, mining, etc., have reduced their loan funds in the range of six per cent to 64 per cent in FY21.

The reduction in effective tax rate (ETR) in FY20 coupled with a prolonged period of low interest rate regime fuelled by the pandemic seem to have been a blessing in disguise for India Inc during pandemic year. Effective tax rate for the said listed entities declined from 35 per cent in FY20 to 26 per cent in FY21 though actual tax paid increased by more than Rs50,000 crore. Many sectors including engineering, realty, automobiles and trading had reported effective tax rate reduction ranging from 1-24 per cent in FY21 as compared to FY20, says a report by the economists of SBI, the country's largest lender.

"Interestingly, with robust direct tax collections, especially corporation tax, in Q1FY22, we believe that the gap between GVA and GDP will be large as the GDP growth in Q1 FY22 would be buoyed by the taxes," chief economic advisor of SBI group, Soumya Kanti Ghosh said.

Despite this, tax collections have been impressive in FY22 with corporation tax revenue at record highs. Our analysis shows that cut in taxes in FY20 has contributed 19 per cent to the top line of sample sectors during pandemic with sectors like cement, tyres and consumer durables showing significant contribution even in excess of 50 per cent.

"With the RBI hinting at an extended period of accommodative policy, we believe that this augurs well for better corporate results and hence robust tax collections going forward and the beginning on a new investment cycle the sooner we are able to reach a critical mass of vaccination," Ghosh added.

An extended period of low interest rate have also helped companies in massive deleveraging and contributed on an average five per cent to the overall top line. Sectors like consumer durables, healthcare and cement have benefitted the most. In terms of expenditure reduction, the overall contribution on top line has been as much as 31 per cent with most companies finding out new ways to navigate through the pandemic. Sectors like apparel and refineries have cut cost by as much 107 per cent on an average. Expenditure has, however, climbed up in sectors like metals, agro chemicals among others reflecting the increase in input costs with a surge in global commodity prices. Employee costs have been cut on an average by three per cent in FY21. The maximum cut in employee costs has been in sectors facing the consumers.