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Small firms flounder post demonetisation, on GST: RBI study
August, 28th 2017

The RBI which studied the results of 2,726 non-government and non-financial companies said the overall EBIDTA of these corporate showed a 0.2 per cent increase. However, net profit declined by 6.9 per cent even as sales improved by 7.2 per cent.

Small companies are finding the going tough with sales and profits taking a big beating in the wake of demonetisation and implementation of Goods and Services Tax (GST). Small companies with a turnover of less than Rs 25 crore reported a 57.6 per cent fall in sales for the quarter ended March 2017, the Reserve Bank of India said in a study.

The RBI study said 726 small companies reported a 122.3 per cent plunge in EBIDTA (earnings before interest depreciation, taxation and amortisation) for the March quarter. While the RBI did not provide any specific reason for the sharp fall in sales and profits of small companies, corporate circles estimate that withdrawal of Rs 500 and Rs 1,000 notes on November 8, 2016 led to liquidity shortage and impacted the business of small companies the most.

On the other hand, the RBI study said big corporate with turnover of Rs 1,000 crore and above reported a 9.5 per cent rise in sales for the March 2017 quarter. EBIDTA of big companies rose by 2.1 per cent during the period, indicating that big corporates managed to weather demonetisation woes while small companies floundered.

The RBI which studied the results of 2,726 non-government and non-financial companies said the overall EBIDTA of these corporate showed a 0.2 per cent increase. However, net profit declined by 6.9 per cent even as sales improved by 7.2 per cent. “Aggregate sales growth (Y-o-Y) improved in 2016-17, primarily for the manufacturing sector, led by some of the major industries like iron and steel, petroleum products and cement and cement products,” the
RBI said.

Sales of services sector companies (other than IT), however, contracted due to poor performance of real estate and wholesale and retail trade companies, it said. The information technology (IT) sector witnessed moderation in sales growth. Interest expenses decelerated in 2016-17 for the manufacturing sector. “Within the manufacturing sector, the iron and steel industry experienced lower growth of interest expenses than in the previous year, while the motor vehicles industry witnessed a significant increase in interest expenses,” the RBI said.

The GST implementation from July has further exacerbated the woes of small companies in the June quarter. Small companies bore the brunt of the GST regime with profits plunging as much as 78 per cent in the quarter ended June. This is largely owing to destocking of goods by companies before execution of GST regime from July 1, rating agency Care Ratings said.

Overall industry profits plunged by 15.7 per cent to Rs 87,475 crore in the June quarter of the current fiscal. “The overall performance has been driven by the large companies that accounted for over 75 per cent of the share in terms of total net sales. They recorded lower net profits of about 23.2 per cent y-o-y in Q1 FY18. Those at the lower end of the size scales witnessed negative growth in both sales and profit,” Care Ratings said in a report.
“Companies with sales between Rs 100 crore and Rs 250 crore posted the highest decline of 78.1 per cent in net profit during the quarter from Rs 870 crore in Q1 of FY17 to Rs 191 crore in Q1 of FY18,” it said. Net sales growth was lower at 8.7 per cent to Rs 14.82 lakh crore in Q1 FY18 after registering a growth of 9.5 per cent in Q1 FY17.

According to an analysis of 2,108 companies by Care Ratings, during Q1 FY18, all companies faced the heat of the uncertainties revolving around the implementation of GST by the government as most companies were destocking goods before July 1 and operations were impacted quite markedly. While companies with net sales more than Rs 100 crore managed to post cumulative profits in absolute values (however, lower than that in Q1 FY17), small companies posted a cumulative loss of Rs 674 crore during the quarter, it said.

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