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Slowdown hit small firms harder in FY14

Mumbai: The slowdown in economic growth last fiscal and the resultant weakness in demand has hit small enterprises harder than their larger counterparts latest data from the Reserve Bank of India (RBI) shows.

 

Companies with revenue of less than Rs.25 crore saw sales contract by 63% in the year ended 31 March while companies with revenue between Rs.25 crore and Rs.50 crore saw a 16.5% drop in sales from a year earlier according to RBI data released on Tuesday. Overall sales growth for all companies analyzed was at 4.7% the data show.
The analysis is based on the abridged financial results of 2854 publicly traded non-government and non-financial companies. For firms with a revenue of anywhere between Rs.50 crore and Rs.100 crore sales dropped 7.7% from a year ago while for companies with sales between Rs.100 crore and Rs.500 crore revenue declined 0.5%.
The performance of small companies has been declining since 2011-12 when sales for these companies saw a 28.5% fall followed by a 29.3% contraction in 2012-13 according to data from the central bank.
“While the sales growth of large companies (sales of more than Rs.1000 crore) moderated sales growth of companies with annual sales between Rs.500 crore and Rs.1000 crore remained near stagnant and sales of smaller companies continued to contract” RBI said in its accompanying press release.
As GDP growth remained below 5% for the second consecutive year in 2013-14 sales growth across most domestic demand-oriented firms took a hit. Small-sized firms which typically work with large corporates as suppliers or manufacturers are the first to take a hit as bigger corporates delay payments and cut down orders analysts said.
“Based on my interactions with smaller companies the biggest concern for these firms is the non-diversified nature of business. Many are only dependent on one or two customers or markets so in a slowdown if one of them goes away the company gets drastically affected” said Kalpana Jain senior director at Deloitte Touche Tohmatsu India. “Some industries like automobiles have also seen consolidation with big companies reducing their auto component vendors.
” Meanwhile the same data also shows that the interest-to-sales ratio of such companies rose to 27.4 times compared with 10.5 times in the 2013 fiscal. This implies that interest costs for these companies have increased more than the revenue and the companies are not generating enough sales to cover interest payments.
Further the credit health specifically their debt servicing ability is also deteriorating. The interest coverage ratio which gauges the ability of a company to pay interest from its operating profit for these small companies declined to -0.5 times from -0.3 times a year ago.
An interest coverage ratio of less than one indicates that the firm would struggle to repay the interest.
Experts say that the deterioration is largely because of a drop in profitability rather than an increase in debt taken on by these companies.
“Credit growth to this group has been quiet slow in the past few quarters sequentially specifically when these companies require very high working capital compared to others” said Deep Mukherjee senior director corporate ratings at India Ratings and Research Pvt. Ltd.
“If they are not getting the required funds then it affects the business and many times the profits go to a very low base forcing many to change the nature of their operations like manufacturers become traders” he said.
The stress being faced by small and medium enterprises has also shown up in the number of companies which have applied to the Board for Industrial and Financial Reconstruction (BIFR). The year 2013 saw the highest number of applications in at least seven years with 92 companies applying for sick status. The number of firms applying in 2014 till now has already reached 34.
BIFR an agency under the finance ministry determines whether a company has turned sick and assists in helping rescue viable parts of its business while shutting down or disposing of those that are found to be beyond revival. In order to be determined “sick” a company’s accumulated losses should be equal to or more than its net worth according to the criteria cited on BIFR’s website.
To be sure smaller companies are now seeing a turnaround in business activity. According to the Business Confidence Index (BCI) a survey of 629 companies by the National Council of Applied Economic Research (NCAER) firms with an annual sales of between Rs.100 crore-Rs.500 crore showed the highest percentage increase in confidence over the last round of survey in the June quarter. NCAER is an independent economic think-tank.
 “Right now the outlook for smaller companies is far more positive and many are gung-ho about the reviving sentiment in the economy” Deloitte’s Jain said.

Mid-Year Review of the Indian Economy 2013-14

NCAER, the National Council of Applied Economic Research, is privileged to present the 2013-14 Malcolm S. Adiseshiah Mid-Year Review of the Indian Economy for the third successive year in partnership with the India International Centre.

The Mid-Year Review highlights the policy flip-flops and paralysis that plagued policymaking in New Delhi in the run up to the elections and contributed to the slowdown in growth across the economy, especially in sectors like manufacturing, mining and energy.

Business confidence up as companies bet on turnaround: Survey

NEW DELHI: Business confidence is on the upswing as companies are betting on a turnaround in the economy and improvement in the investment climate in the months ahead on the back of an expected reforms drive a survey by a think tank showed on Friday.

The survey by National Council of Applied Economic Research (NCAER) showed the business confidence (BCI) rose 13% in June quarter 2014 over 3.8% in the previous quarter.

Out of the four components of the BCI three showed improvement reflecting higher expectations of overall economic growth improvement in financial position of the firms and investment climate for the overall economy. The fourth component optimal capacity utilization showed a marginal decline the survey showed.

The political confidence index (PCI) in June quarter surged by 20% over April 2014. All eight components of PCI reflected higher optimism in this round.

The current survey was conducted just after the formation of a new government at the Centre with a single party getting majority of its own after three decades.
In June the government was getting ready to present its Budget. Hopes and expectations from the government were high given its emphasis on reviving economic growth the survey showed.

On the economic front inflation had showed some signs of moderating and industrial production was up especially in April and May. Exports also showed signs of improvement NCAER said in a statement. “However there was still a great degree of uncertainty regarding monsoon as El Nino was predicted around that time.”
The survey is based on a sample of 629 respondents. NCAER is the country’s oldest and largest independent economic think-tank set up in 1956.

All five major sectors of the economy show an improvement in business sentiments in the present survey over the last round. Although service sector firms have registered the highest BCI in terms of percentage change the manufacturing sector reflects higher optimism than service sector firms in the current survey.

It said the regional distribution of responses reflects mixed perceptions. Except the South the other three regions registered higher level of optimis

NCAER Business Expectations Survey July 2014

Press Release

The Business Confidence Index Quarter 1 2014-15 NCAER 
 
Continued Upward Trajectory: Business Confidence on its Accelerated Growth Trend
 
  • The BCI rose by 13 per cent in June 2014 over April 2014 overshadowing the 3.8 per cent increase in April 2014 over January 2014.
  • Out of the four components of BCI three showed improvement reflecting higher expectations of overall economic growth financial position of the firms and investment climate for the overall economy improved. Only the fourth component optimal capacity utilisation showed a marginal decline.
  • The Political Confidence Index (PCI) as similarly recorded in June 2014 surged by 20 per cent over April 2014. All eight components of PCI reflect higher optimism in this round.
 
 
New Delhi Wednesday 29 August 2014: The current survey was conducted just after the formation of a new government at the Centre with a single party getting majority of its own after three decades thereby assuring citizens of stability. June was the time that the government was getting ready to present its maiden budget. Hopes and expectations from the government were high especially given its emphasis on reviving economic growth. On the economic front inflation had showed some signs of moderating and industrial production was up especially in the months of April and May 2014. Exports also showed signs of improvement. However there was still a great degree of uncertainty regarding monsoon as El Nino was predicted around that time. The Business Confidence Index (BCI) compiled by the National Council of Applied Economic Research (NCAER) provides an assessment of the sentiments of the business sector in June 2014 given this background. 

The survey is based on a sample of 629 respondents.
 
 

Highlights of BES round 89

 

  • The 89th round of BES (Business Expectations Survey) carried out in June 2014 reflects improvement in business sentiments as measured by the NCAER Business Confidence Index (BCI). The BCI rose by about 13 per cent over the previous quarter.

  • Three of the four components of the BCI show a higher level of optimism. While expectations of economic conditions improving in the short run and positive ratings on investment climate are the main factors behind the increase in overall confidence marginally lower ratings on capacity utilisation are an area of concern in the present survey.
  • All five major sectors of the economy show an improvement in business sentiments in the present survey over the last round. Although service sector firms have registered the highest BCI in terms of percentage change the manufacturing sector reflects higher optimism than service sector firms in the present survey.

  • The regional distribution of responses reflects mixed perceptions. Except the South the other three regions registered higher level of optimism in the survey.

  • The disaggregation of responses by firm size reflects improved optimism for all size categories of firms. Firms with an annual turnover between ₹100-500 crore show the highest percentage increase in confidence over the last round of survey. The distribution of firms by ownership type reveals improvement in both public and private sector firms in the present round of the survey.

  • An increase in production domestic sales exports and pre-tax profits is expected. There is also a positive outlook with respect to employment and wages. The prices of inputs as well as the ex-factory prices of outputs are slated to rise.

  • In line with the BCI the Political Confidence Index (PCI) too has shown an improvement in the present round surging by almost 20 per cent in this round. All eight components of PCI reflect higher optimism in this round.

  • Public sector firms have registered falling confidence levels as against the positive outlook shown by private sector firms in terms of political management of economic policies.

  • Business plans for capacity expansion expanding into new lines of business and improvement of quality and efficiency depend heavily on favourable budget. There is anticipation of an increased tax rate in the budget of the new governmen

 
About NCAER

NCAER the National Council of Applied Economic Research is India’s oldest and largest independent economic think-tank set up in 1956 at the behest of Prime Minister Jawaharlal Nehru to inform policy choices for both the public and private sectors.  Over nearly six decades NCAER has served the nation well with its rich offering of applied policy research unique data sets evaluations and policy inputs to central and state governments corporate India the media and informed citizens. It is one of a few independent think-tanks world-wide that combines rigorous economic analysis and policy outreach with data collection capabilities particularly for large-scale household surveys. NCAER is currently led by its Director-General Dr Shekhar Shah and governed by an independent Governing Body chaired by Mr Nandan M. Nilekani.
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Economy grows 5.7%, clocks fastest growth in 2 yrs

HT Correspondent Hindustan Times  New Delhi August 29 2014

First Published: 18:06 IST(29/8/2014) | Last Updated: 11:15 IST(30/8/2014)

 

The Indian economy expanded at its fastest pace in two-and-a-half years in the quarter ending June on the back of a turnaround in manufacturing as sentiment was boosted by the Narendra Modi government’s measures to help recover from the longest slump in a quarter of a century.

Data released on Friday showed gross domestic product (GDP) grew by a better-than-expected 5.7% in April-June sharply higher than 4.6% in the previous quarter signalling a revival in the economy.

Asia’s third-largest economy expanded by less than 5% for two straight years because of policy logjams project delays and a string of corruption scandals. But the government said the economy had turned the corner.

 

“With improvement witnessed in some important sectors including manufacturing as well as in the performance of exports along with the measures taken by the government the economy can be expected to show further improvement in the remaining part of the year” a finance ministry statement said.A slew of other data also pointed to better times for the country’s financial health.

 

Domestic passenger vehicles sales grew for the third month in a row in July signalling a revival in demand that began when excise duties were lowered during the interim budget last February.

 

The National Council of Applied Economic Research’s (NCAER’s) quarterly business confidence Index (BCI) — a measure to gauge economic sentiment — rose by 13% in June 2014 from April 2014.

 

Data released by the Central Statistics Office (CSO) showed that the manufacturing sector which accounts for about 15% of the economy grew by 3.5% in April-June — the fastest in nine quarters— compared with a contraction of 1.4% in the previous quarter and a decline of 1.2% in the year-ago period.

 

Farm output grew 3.8% compared with 4% in the same quarter last year but patchy monsoon rains could affect agricultural income hurting sales of consumer goods such as refrigerators and vehicles. Importantly low farm output could push up food inflation which is hovering around 10%.

 

Capital goods output a broad gauge of investment activity grew 13.9% in April-June compared to a contraction of 3.7% in the same period of the previous year in what could be a sign that companies are adding new capacities.

 

The slide in the services sector which accounts for more than two-thirds of the economy appears to have been arrested. The sector including construction grew by 6.8% in the April-June quarter higher than 5.8% in 2013-14.

 

All the major components of the services economy — hotels communication trade and hotels — have recorded growth rates higher than the previous year although they are still far lower than the decadal average.

 

Between 2004-05 and 2009-10 the services sector which accounts for more than two-third of the Indian economy grew at an average of more than 10%. This pulled the broader economy’s growth to more than 8% for all years except 2008-09 when a financial crisis roiled the world economy.

 

The Congress however said it was not impressed.

 “For those who have consistently got over 8% growth of Indian economy year after year and whose lowest average is the highest than the NDA’s highest average rate of growth we are not impressed” party spokesman Abhishek Singhvi said.

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