Sales contraction eases for manufacturing sector

RBI data shows softer contraction of 4.3 per cent (Y-o-Y) in Q2 after shrinking 41.1% in Q1

Mumbai: Demand conditions in the manufacturing sector returned to the recovery mode with a softer contraction of 4.3 per cent (Y-o-Y) in the second quarter of this fiscal in terms of nominal sales after shrinking 41.1 per cent in the previous quarter that was hit by countrywide lockdowns due to Covid-19, according to RBI data.

The recovery was led by iron and steel, food products, cement, automobile and pharmaceuticals companies, showed the data on the performance of the private corporate sector during the second quarter of 2020-21. Manufacturing companies reported sales of Rs 5,99,479 crore in the second quarter, compared to Rs 3,97,233 crore in April-June of FY 2020-21. The data has been drawn from abridged quarterly financial results of 2,637 listed non-government non-financial (NGNF) companies, the RBI said.

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Nominal sales of non-IT services sector also registered lower contraction of 14.5 per cent (Y-o-Y) led by expansion in sales of telecommunication and real estate companies. Sales growth of IT sector companies remained steady at 3.6 per cent (Y-o-Y) in Q2 FY 2020-21.

As per the data, sales of non-IT firms and IT firms during the second quarter stood at Rs 80,842 crore and Rs 1,01,353 crore, respectively. “Operating profits of manufacturing companies increased on the back of savings in expenditure; operating profits of services (both IT and non-IT) companies also increased in Q2:2020-21,” the RBI said in a statement.

On expenditure, it said input cost pressure from raw materials remained subdued for manufacturing sector in the July-September quarter of the fiscal. Meanwhile, staff cost growth (Y-o-Y) decelerated for IT companies in the second quarter, whereas it remained in contraction zone for the manufacturing and non-IT services sectors.

As per the data, with rise in profits, interest coverage ratio (ICR) of manufacturing companies improved to 4.6 in the second quarter of 2020-21 from 2.4 in the previous three-month period. The ICR of non-IT services companies remained below one.

Also, profit margins improved across manufacturing and services companies on account of rise in profit from cost saving. The coverage of companies in different quarters varies, depending on the date of declaration of results. This is, however, not expected to significantly alter the aggregate position, the RBI said.

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