Home / Markets / Mark To Market /  Small companies suffer as the big get bigger

The coronavirus pandemic has dealt a severe blow to small companies—so much so that even after nearly two years into the event, they are struggling to survive. To understand the severity of the situation, investors need to look at their September quarter earnings.

A size-wise analysis by Care Ratings Ltd based on net sales shows that the improvement in corporate performance is skewed towards the larger companies.

The ratings agency has analyzed the quarterly earnings results of 2,113 companies covering around 40 industries and spanning the last five quarters as well as of the pre-crisis period, i.e. Q2 FY20. It should be noted that this analysis does not include companies from the banking and financial services industry.

Small is not beautiful
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Small is not beautiful

Large companies comprise 34% of the sample size and account for 96% of the net sales, 96% of operating profit and 98% of profit after tax in Q2 FY22, showed the analysis. Further, large companies have seen their volume of sales, operating profits and profit after tax surpass the pre-pandemic levels of September 2019. On the other hand, micro-sized companies witnessed a sequential decline in sales and their volume of sales is well below September 2019 and that too by over 70%. These companies comprise around 15% of the sample, said the report. Barring the micro companies, there has been a sequential improvement in net sales, operating profit and profit after tax in the latest quarter, added the Care Ratings report.

Analysts say small companies have been facing a double-whammy of weak demand and elevated cost pressures post the pandemic. This led to stretched working capital needs and rise in debt, which have weighed on their overall finances. Simply put, the big are getting bigger due to the accelerating pace of consolidation across industries.

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