We crunched results of 1130 firms to understand how FY21 really unfolded

The documented experience of the just concluded fiscal year offers important clues about what lies ahead; on the levers that India Inc may once again pull, as it recovers from a second wave of covid-19 and prepares for a likely third wave. (Photo: Bloomberg)
The documented experience of the just concluded fiscal year offers important clues about what lies ahead; on the levers that India Inc may once again pull, as it recovers from a second wave of covid-19 and prepares for a likely third wave. (Photo: Bloomberg)


  • An in-depth analysis of the FY2020-21 balance sheets of over 1,100 listed firms reveals some interesting trends.
  • One major area of cost-cutting was compensation to employees, whether in the form of laying off staff, employing contract labour for fewer days, or by pruning salaries

BENGALURU : Real estate developer Mahindra Lifespaces entered financial year 2020-21 with a modest 3% growth in net sales. It exited 2020-21 with a steep 73% drop in net sales. The pandemic compelled people to stay indoors, but they bought fewer new homes. Mahindra’s stock of unsold houses rocketed from two times its net sales to six times.

As the annual balance sheets of India’s listed firms begin to trickle out, the dramatic upheavals of the pandemic year are starting to get a bit more tangible and clearer. There were some unlikely winners and many understandable losers.

For instance, if Mahindra Lifespaces was at one extreme end of India Inc’s fortunes in 2020-21, Nazara Technologies was at the other. As people stayed inside their homes, more logged into the company’s suite of online games and sports media offerings and gave its revenues an 83% boost.

A broad-based analysis of the corporate results of over 1,100 companies (1,130 to be precise) shows that even as revenues, at the aggregate level, fell by 6%, the operating profit of this representative set of India Inc shot up by 30% and net profit climbed by 48%. In marked contrast, in the US, aggregate net profit decreased by 6% in 2020, according to the US Department of Commerce. The revenue-profit dichotomy within corporate India suggests that companies went on a massive cost-cutting spree, which was at an order of magnitude different from what unfolded in other countries. Thus, the documented experience of the just concluded fiscal year offers important clues about what lies ahead; on the levers that India Inc may once again pull, as it recovers from a second wave of covid-19 and prepares for a likely third wave.

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To capture how the pandemic affected corporate India, and the choices that it made, we analyzed the financial statements of 1,130 companies over the past three years. These are companies whose latest annual revenues exceeded 10 crore and whose results for the year ended March 2021 are available. This analysis covers four broad prisms: growth, profitability, cost management and financial management.

Sweep of impact

In aggregate terms, net sales of this set of 1,130 companies contracted 6% in 2020-21. Yet, as many as 560, or nearly 50%, recorded a year-on-year increase in net sales. In fact, this was a marginal increase over the 531 firms that registered higher net sales in 2019-20. With millions of Indians homebound for a majority of the year, niche and high-tech sectors benefitted from the disruption. For instance, Angel Broking, an online stock trading platform, saw its revenues rise 74%.

In spite of similar strike rates, one difference between the two years for the set of companies that faced a shrinkage in business was the sweep of the impact. In 2019-20, the decline was seen more at a company level than at a sector level. That is, some companies in a sector fared well, while others faltered. In 2020-21, however, the pandemic added a significant sectoral factor to a firm’s performance.

We classified the 1,130 companies under eight broad sectoral categories, keeping in mind the nature of the businesses and how the pandemic impacted them. ‘Industrials’ comprise the largest sector in our data set, with 567 companies, or around 50% of the total. This is the heart of manufacturing. Further, we separated services into IT services (which was less impacted) and other services (like real estate, hospitality, entertainment, which were more impacted). Pharma, consumer goods and agriculture were three sectors that acquired greater relevance during the pandemic, and, hence, were considered separately.

In 2020-21, close to two-thirds of companies in agriculture, consumer goods, pharma and IT services recorded an increase in net sales (see Chart 1). In each of these four sectors, the strike rate is similar to what they managed in 2019-20. Even in industrials, the share of firms reporting an increase in revenues actually went up—from 34% to 46%. Two companies that went from a decline in 2019-20 to an increase in 2020-21 are Borosil Renewables, which makes glass for solar panels, and Hindustan Zinc, which mines zinc. The carnage really happened in ‘other services’, where firms saw business stall in significant degrees. The share of companies here that reported an increase in net sales fell from 56% to 36%. Leading the decline were cinema chains INOX Leisure (-94% change in net sales), PVR (-94%) and UFO Moviez (-83%); travel services majors Thomas Cook (-88%) and International Travel House (-72%); hotel companies EIH (-69%) and Indian Hotels (-65%); and real estate companies Mahindra Lifespaces (-73%) and Godrej Properties (-69%).

With intense pressure on revenues, many Indian firms took a hard look at their costs. For example, a cinema chain like INOX Leisure bought the screening rights to fewer films and incurred lower expenses to keep its theatres running. While its revenues fell 94%, its total expenditure too fell 95%. Still, there were 32 firms that spent more despite a fall in their net sales. As many as 17 of these were industrials, including Tata Chemicals (net sales down 1.5%, but expenses up 3.4%) and Bosch (-1.3%, 2.4%). Also, in this list was cigarette and consumer goods major ITC (-0.1%, 6.6%). For most of them, unlike the pandemic-stricken businesses, the drop in revenues was in low single digits. In other words, they were still incurring variable costs calibrated to similar levels of revenue, plus sizeable fixed costs.

Then, there were firms that saw an increase in revenues, which potentially gave them greater latitude on their spending choices. Of the 560 firms whose revenues increased, 461 also showed an increase in expenses. Interestingly, there were 96 firms, or 17%, whose expenses fell despite an increase in revenues. Among them were 46 firms from the industrials category including the likes of Vedanta, Tata Steel and JSW Steel; and 17 from the IT services sector including Wipro, Tech Mahindra, Mindtree and NIIT.

The staff costs

One major area of cost-cutting was compensation to employees, whether in the form of laying off staff, employing contract labour for fewer days, or by pruning salaries. In aggregate terms, for our set of 1,130 companies, total employee expenses increased, but at a much slower pace. The year-on-year increase in employee expenses halved from 7.4% in 2019-20 to 3.8% in 2020-21. Within this, though, companies took very different approaches. About 51% of the companies cut employee expenses in 2020-21, with the aggregate decrease amounting to 10%.

Among the firms whose net sales increased, about 28% still cut staff costs. This number increased to 74% among companies whose net sales fell. Firms in sectors that were most affected by the pandemic were also the most active in reducing employee costs. About 62% of firms under ‘other services’—mostly in the travel, leisure and hospitality sectors—cut staff costs (see Chart 2).

Notably, for 127 companies, both sales and profit after tax have risen, but employee expenses have fallen. In other words, these are firms that fared better during the pandemic year, yet they dialled down on compensation to employees. For example, steel major JSW reduced employee expenses by 12% even though it comprises merely 4% of its total expenditure. Others in this set included Reliance Jio, chemicals major BASF India, and tyre manufacturers JK Tyre & Industries and Apollo Tyres. Adani Green Energy reduced employee costs by 64% amid a 20% increase in net sales.

Thanks to such cost management, firms fared better in the profit from operations column than revenues. Overall, 64% of the companies reported higher operating profits (difference between net sales and total expenses). The pandemic saw several companies being forced to operate at a smaller scale. For a sizeable number of them, though their revenues fell, they pruned costs to a great degree, and still managed to report an operating profit. Of the 570 companies whose net sales fell, there were 229 that still reported higher operating profits. These included companies that went from an operating loss in 2019-20 to an operating profit in 2020-21—such as JCT, Quess and Venkys.

Future risk

Some of the increase in revenues and operating profits reported by the companies last year is a future risk. In general, nearly two-thirds of India Inc is carrying greater levels of unsold goods and greater levels of pending payments. Both these indicate increased financial stress.

Inventories represent finished goods that were produced by a company, but not yet sold. The inventory-to-sales ratio indicates what percentage of sales the company is carrying on its books. For the 750 companies whose inventory-to-sales ratio was greater than 10% in 2020-21, as many as 474 companies (63%) saw this ratio increase compared to the previous year, indicating a greater pile up of unsold items.

Consider the plight of real estate developers, who are all carrying high levels of unsold houses and have that much cash locked in. With fewer houses being sold during the pandemic, this metric worsened for them. As many as 13 of the 15 companies with the highest inventory-to-sales ratio in 2020-21 were real estate companies.

Similarly, companies also sold goods on easier terms. Trade receivables represent money that a company’s customers owe it. And the trade receivables-to-sales ratio indicates what percentage of sales the company is yet to realize. For 824 companies with a trade receivables-to-sales ratio of above 10%, 513 (62%) have seen this ratio increase, representing more unpaid dues. Companies are hoping that as economic activity picks up, they will sell these unsold goods and realize pending payments. There is some evidence to back this expectation.

In every subsequent quarter after June 2020, economic recovery was steady and sustained. In the September 2020 quarter, for instance, the quarter-on-quarter increase in aggregate revenues was 35%. The positive trend then continued in the December 2020 and the March 2021 quarters, with a quarter-on-quarter (q-o-q) increase in net sales of 15% and 12%, respectively. About 52% companies have reported a q-o-q increase in revenues for each of the last three quarters.

The strongest rebound is being seen in the sectors that suffered the most—namely industrials and other services. However, this is partly also due to a lower base effect. Ultimately, even in one of the most uniquely troublesome years in corporate India’s history, many firms managed to keep their head well above water.

In fact, about half of the 1,130 companies fared better during the pandemic year, strictly from a sales and profit point of view. That result of course came at a steep cost, to those within the firms and also those around.

As the corporate earnings for the current quarter begin to roll out, it will not only capture the impact of the second wave of covid-19 but will also reveal whether more companies have learnt to live with the pandemic better.

Arjun Srinivas is associated with

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