It can be noted that the GDP of the country contracted by 23.9 per cent during the quarter, which had witnessed total lockdown of the country for the first two months to contain the spread of the coronavirus infections.
The rating agency said corporate revenues had been falling for three quarters prior to the last one due to the weak macroeconomic climate but had never declined by as high as the 31.1 per cent for April-June 2020 as compared to the year-ago period.
“Restrictions on manufacturing, industrial, construction and consumption activities for the major part of Q1 FY2021 due to imposition of nationwide lockdown primarily hurt the financial performance of the Indian corporate sector,” its vice president Shamsher Dewan said.
He said the contraction in revenues was sharpest in consumer-oriented sectors where revenues contracted to nearly half of the year-ago levels, given customer wariness for large-ticket buys because of the uncertain economic environment and erosion of purchasing power.
Sectors like airlines, hotels, retail, automotive, consumer durables which represent discretionary spending were significantly impacted, while FMCG and consumer goods were relatively less impacted, he said.
From pre-tax margins perspective, the number narrowed to 3.6 per cent in Q1 as against 4.3 per cent in the preceding March quarter, the agency said.
“Negligible revenues for the major part of the quarter, which impacted the absorption of fixed overheads, and lower realisation in commodity sectors (especially metals and oil and gas), weighed on the profitability of India Inc, with profit before tax margins contracting to multi-year lows,” the agency said.
Sectors with sharp margin contraction included airlines, hotels, retail, healthcare, and gems and jewellery, it said.
The agency, however, said that margins would revive from these historic lows in the present quarter, supported by better distribution of fixed overheads vis-a-vis the period of negligible sales.
From an interest coverage ratio perspective, pressure on credit profiles seemed to be building up, the agency said. It can be noted that the RBI had given a moratorium for six months which ended on August 31 and has allowed loan recasts on a case to case perspective after that.