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The Economy Observer: Higher costs offset better sales for India's listed corporate sector in 1QFY18

  • Reserve Bank of India (RBI) data for private corporate sector (2,744 listed non-government non-finance companies)indicate that aggregate sales and expenses grew at 18-quarter high of 7.6% and 11% YoY,  respectively in 1QFY18. At3.4pp, the gap between expenses growth and sales growth was the highest in five years.
  • Interest payments declined 1.5% YoY for the second consecutive quarter. Interest coverage ratio was 1x or lower for four industries – textiles, construction, iron & steel and telecommunication.
  • Owing to the sharper rise in raw material expenses vis-a-vis sales, operating profits contracted by 10% YoY, marking the first decline in four years. EBITDA margin dropped to a 9-quarter low of 17.2%.
  • Finally, manufacturing GVA growth – as per the RBI sample – declined by a sharp 9.6% YoY in 1QFY18, because of a sharp decline in the manufacturing sector’s net profit.This confirms the slowdown in GDP growth in 1QFY18.