Two years of pandemic: A tale of resilience, recovery for India Inc

The two-year pandemic period was a tale of resilience and recovery for India Inc, with corporates registering growth in operating and net profits, while telecom and health verticals helped improve prospects of the service sector. However, going forward, the severe inflationary pressures and high input costs may spoil corporate India’s party, according to a study.

The distinguishing element of corporate performance was profitability. Both operating profit (PBDIT) and net profit consistently grew at 26.6% and 34.8%, respectively, annually during the period, which were the highest in any two-year block over the last couple of decades, according to a report by Acuite Ratings & Research, which surveyed the financial performance of 1,370 listed non-financial companies over FY21 and FY22, said.

“The performance of the corporate sector has clearly surprised on the upside given the severe impact of the prolonged pandemic on lives and livelihood, and has been instrumental in the economic recovery seen in FY22. Some of the businesses, particularly in the manufacturing sector, have been fairly resilient and actually strengthened their financial performance in the period, while many others staged a significant recovery by end of FY22,” Suman Chowdhury, chief analytical officer at Acuite, said.

“While the corporate sector capitalised on the available supporting framework in terms of access to additional funds and lower interest costs, it has also been largely prudent in the intake of debt,” it added.

The operating margins of the companies analysed rose over 500 basis points (bps) and net margins by 250 bps in FY21 over FY20. However, the high operating margins, which could not be sustained in FY22 due to the firming up of commodity prices, dropped 130 bps versus FY21. Nevertheless, net margins have continued to hold on in FY22.

The improvement in the corporate sector margins were driven by cost efficiencies and rationalisation measures. The overall revenue of companies fell by only 6.4% in the first year of the pandemic and recovered sharply by 36% next year, despite the second and third waves.

The manufacturing sector’s topline grew at 14% and that of the services sector at 8.9% during the period under review. While manufacturing has been relatively resilient with demand coming in from exports, the average operating margins of services rose sharply to 24.4% in FY21 and 29.7% in FY22, despite the pandemic.

The services sector was supported by the Emergency Credit Line Guarantee Scheme that led to an increase in debt intake. The sector’s overall operating margin recovered sharply with telecom (tariff rationalisation playing a big role) and health sectors coming to its rescue.

According to Acuite, the overall performance of the listed micro, small and medium enterprises (MSMEs) was more significant than their large corporate counterparts, with the two-year revenue annual growth of 13.4% and an annual net profit of 63.7%.

While corporate India came out unscathed from the pandemic, a bigger hurdle of severe inflation awaits it, said.

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