‘Demand in manufacturing revived in Q2’

Sector saw softer contraction of 4.3% in sales, growth for IT firms remained steady at 3.6%: RBI data.

December 25, 2020 10:45 pm | Updated 10:45 pm IST - Mumbai

AHMEDABAD : GUJARAT : 01/02/2020 : (THIS FILE PICTURES FOR UNION BUDGET RELATED STORY) Worker at Welspun factory in Anjar Kutch. Photo : Vijay Soneji / The Hindu.

AHMEDABAD : GUJARAT : 01/02/2020 : (THIS FILE PICTURES FOR UNION BUDGET RELATED STORY) Worker at Welspun factory in Anjar Kutch. Photo : Vijay Soneji / The Hindu.

Demand conditions in the manufacturing sector returned to recovery mode with a softer contraction of 4.3% year-on-year in the quarter ended September in terms of nominal sales, according to RBI data. This followed a shrinkage of 41.1% in the previous quarter that was hit by countrywide lockdowns due to COVID-19.

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 (Q2) of 2020-21.

Manufacturing companies reported sales of ₹5,99,479 crore in the second quarter, compared with ₹3,97,233 crore in April-June of FY21.

The data had been drawn from abridged quarterly financial results of 2,637 listed non-government non-financial (NGNF) companies, the Reserve Bank of India (RBI) said. Nominal sales of non-IT services sector also registered lower contraction of 14.5% year-on-year, led by expansion in sales of telecommunication and real estate companies.

Sales growth for IT companies remained steady at 3.6% in Q2.

As per the data, sales of non-IT firms and IT firms stood at ₹80,842 crore and ₹1,01,353 crore, respectively, during the second quarter.

‘Savings spurred profits’

“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,” the RBI said in a statement.

On expenditure, it said input cost pressure from raw materials remained subdued for the manufacturing sector in the quarter. Meanwhile, staff cost growth decelerated for IT firms in the second quarter, whereas it remained in contraction mode for the manufacturing and non-IT services sectors.

‘Interest coverage rises’

As per the data, with rise in profits, the interest coverage ratio (ICR) of manufacturing companies improved to 4.6 in the second quarter from 2.4 in the immediately 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 a rise in profit from cost savings.

The coverage of companies in different quarters varies, depending on the date of declaration of results. This, however, was not expected to significantly alter the aggregate position, the RBI said.

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