Manufacturing Firms Record “Softer Squeeze” in Sales to 4.3% in Q2 of FY21: RBI Data

Demand conditions in the manufacturing sector reverted to recovery mode with a milder contraction of 4.3 percent (year-over-year) in the second quarter of this fiscal in terms of nominal sales after the 41.1 percent contraction in previous quarter which was hit with nationwide blockages due to COVID-19, according to RBI data.

The recovery was led by steel, food, cement, automotive and pharmaceutical companies, data on the performance of the private enterprise sector in the second quarter 2020-21 showed.

Manufacturing firms reported sales per crore of Rs 5.99,479 in the second quarter, compared to Rs 3,97,233 crores in April-June of fiscal 2020-21.

The data was drawn from the abbreviated quarterly financial results of 2,637 listed non-governmental non-financial corporations (NGNFs), the RBI said.

Nominal sales of the non-IT services sector also recorded a lower contraction of 14.5 percent (y / y) driven by the expansion in sales of telecommunications and real estate companies.

Sales growth of IT companies remained stable at 3.6% (year over year) in the second quarter of fiscal year 2020-21.

According to the data, sales of non-IT companies and IT companies during the second quarter stood at Rs 80,842 crore and Rs 1,01,353 crore, respectively.

“Operating profits of manufacturing companies increased due to cost savings; operating profits of service companies (both IT and non-IT) also increased in the second quarter: 2020-21,” the RBI said in a statement.

On spending, he said the pressure on input costs from commodities remained subdued for the manufacturing sector in the July-September quarter of the fiscal year.

Meanwhile, growth in personnel costs (year-on-year) slowed for IT companies in the second quarter, while it remained in a zone of contraction for the manufacturing and non-IT services sectors.

According to the data, as profits increased, the interest coverage rate (ICR) of manufacturing firms improved to 4.6 in the second quarter of 2020-21 from 2.4 in the preceding three-month period. The ICR of non-IT service companies remained below one.

Additionally, profit margins have improved between manufacturing and service companies due to increased profits from cost savings.

The coverage of the companies in the different quarters varies according to the date of reporting the results. This, however, shouldn’t significantly alter the aggregate position, the RBI said.