How companies managed to boost profitability post-lockdown
ECONOMY & POLICY

How companies managed to boost profitability post-lockdown

Will profits growth of over 30% in Q2 sustain?
Large companies are cornering bigger market shares. Their turnovers are rising at the cost of other declining turnovers of smaller and medium-sized firms. Consolidation is likely as either the companies will sell out or clients will agree to pay a higher price and reach out to the bigger brand and more trusted company in virtually every sector.

The economy has shrunk by 7.5% in the second quarter against a 23.9% contraction in the first quarter, signalling that business reopening has had a positive impact. Now RBI’sGovernor is projecting a contraction of 7.5% for FY 2021 against previous estimates of acontraction of 9.5%.

The construction sector has sprung back from the first quarter’s debacle of 50.3% to a contraction of 8.6%. The laggard sectors continue to be hospitality, transport, trade, among others.

On an aggregate basis, 50% of the net profits of corporate India are being delivered by just 50 companies.

An analysis by BusinessLine shows that aggregate revenues for 3,827 non-financial listed companies declined by 7% this quarter compared to a 34% contraction in April-June. Operating profit margins expanded by four percentage points and net profits of these companies grew 31% in Q2, after an 80% decline in lockdown disrupted Q1 FY21.

Surprise, surprise? As lockdown began, corporate India spun into action, and on the back of benign input costs, managed savings in travel and overheads and cut advertising expenses. As interest rates cut many companies even resorted to cutting debt. Companies took advantage of the new tax regime and saw a lower outgo. Here is what contributed to the bottomline buoyancy:

a. Recoveries in sectors like pharmaceuticals, chemicals, financials, IT and cement.
b. Lower operating expenses
c. Lower raw material rates
d. Tax rate reduction offered in September last year.
e. Lower interest rates
f. Renegotiation of rental rates
g. Retrenchment and salary cuts

Just scratching beneath the surface, we find that the quarter’s profits harvest (YoY) was reaped by:

  • Building materials with 54.8% improvement where cement has contributed an improvement of 68.38% (Ultratech has jumped by 89.1%, Ambuja Cement by 87.77%, Shree Cement 77.06% Ramco Cement by 40.19% contributing to the larger absolute rise in net profits) where cement saved costs by moving material by rakes rather than by road. The Ceramics, Stone and Sanitaryware sector contributed 20.7% with Somany, HSIL, Asian Granito contributing the most. Glass, Laminates, Wood products have all suffered.
  • Infrastructure sector contributed by construction infrastructure profit makers like L&T ( a 238% jump) IRB Infra, Ashoka Buildcon, MBL Infra, Adani Ports. But most other construction contracting companies struggled to get back on their feet.
  • Real estate sector has been badly hit too with almost all showing declines over previous year same quarter
  • Many of the ‘lockdown’ benefits will get withdrawn like moratorium, salary cuts will get restored, operations will require rehiring, building material rates have shot up, festivities will be over, and so going forward the road to profitability will not drive through any further cost cutting measures but acceleration of growth.

    Demand needs to come back. Private consumption which is the driver of the economy (accounting for 58% of the GDP) witnessed a contraction in growth of (-) 11.32% in growth rates in Q2 FY21 from year ago (6.4%). As per Care Ratings, on the capex side, the expenditure by the Central Government was relatively slower with 40% of the budgeted amount being spent compared with 55% last year. For revenue expenditure it was also slightly lower at 50% compared with 53% last year. Hence there has been prioritization in expenditures across ministries to keep overall expenditure under check considering that the revenue flows have been much lower on account of the lockdown which affected tax collections quite sharply. Significant cut down in spending has also been seen in the Ministry of Roads, Transport & Highways which spent only 50% of the budgeted expenditure until September 30 against last year’s 62%. On the revenue side out of the Rs 22.46 trillion of non-debt revenue, only 25% has been garnered as against 40% last year during the first 6 months. The shortfall of 15% is around Rs 3.36 trillion. Last year too there was not much movement on disinvestment and that would be another challenge in the next 5 months. While GST collections have been good in October, a lot depends on the sustainability of the same.

    Author: Pratap Padode is Editor-in-Chief, Construction World, & Founder, FIRST ConstructionCouncil.

    Also read: Why India’s GDP is leaking!

    Also read: We are in the final stages of mining reforms: Pralhad Joshi


    Will profits growth of over 30% in Q2 sustain? Large companies are cornering bigger market shares. Their turnovers are rising at the cost of other declining turnovers of smaller and medium-sized firms. Consolidation is likely as either the companies will sell out or clients will agree to pay a higher price and reach out to the bigger brand and more trusted company in virtually every sector. The economy has shrunk by 7.5% in the second quarter against a 23.9% contraction in the first quarter, signalling that business reopening has had a positive impact. Now RBI’sGovernor is projecting a contraction of 7.5% for FY 2021 against previous estimates of acontraction of 9.5%. The construction sector has sprung back from the first quarter’s debacle of 50.3% to a contraction of 8.6%. The laggard sectors continue to be hospitality, transport, trade, among others. On an aggregate basis, 50% of the net profits of corporate India are being delivered by just 50 companies. An analysis by BusinessLine shows that aggregate revenues for 3,827 non-financial listed companies declined by 7% this quarter compared to a 34% contraction in April-June. Operating profit margins expanded by four percentage points and net profits of these companies grew 31% in Q2, after an 80% decline in lockdown disrupted Q1 FY21. Surprise, surprise? As lockdown began, corporate India spun into action, and on the back of benign input costs, managed savings in travel and overheads and cut advertising expenses. As interest rates cut many companies even resorted to cutting debt. Companies took advantage of the new tax regime and saw a lower outgo. Here is what contributed to the bottomline buoyancy: a. Recoveries in sectors like pharmaceuticals, chemicals, financials, IT and cement. b. Lower operating expenses c. Lower raw material rates d. Tax rate reduction offered in September last year. e. Lower interest rates f. Renegotiation of rental rates g. Retrenchment and salary cuts Just scratching beneath the surface, we find that the quarter’s profits harvest (YoY) was reaped by: Building materials with 54.8% improvement where cement has contributed an improvement of 68.38% (Ultratech has jumped by 89.1%, Ambuja Cement by 87.77%, Shree Cement 77.06% Ramco Cement by 40.19% contributing to the larger absolute rise in net profits) where cement saved costs by moving material by rakes rather than by road. The Ceramics, Stone and Sanitaryware sector contributed 20.7% with Somany, HSIL, Asian Granito contributing the most. Glass, Laminates, Wood products have all suffered. Infrastructure sector contributed by construction infrastructure profit makers like L&T ( a 238% jump) IRB Infra, Ashoka Buildcon, MBL Infra, Adani Ports. But most other construction contracting companies struggled to get back on their feet. Real estate sector has been badly hit too with almost all showing declines over previous year same quarter Many of the ‘lockdown’ benefits will get withdrawn like moratorium, salary cuts will get restored, operations will require rehiring, building material rates have shot up, festivities will be over, and so going forward the road to profitability will not drive through any further cost cutting measures but acceleration of growth. Demand needs to come back. Private consumption which is the driver of the economy (accounting for 58% of the GDP) witnessed a contraction in growth of (-) 11.32% in growth rates in Q2 FY21 from year ago (6.4%). As per Care Ratings, on the capex side, the expenditure by the Central Government was relatively slower with 40% of the budgeted amount being spent compared with 55% last year. For revenue expenditure it was also slightly lower at 50% compared with 53% last year. Hence there has been prioritization in expenditures across ministries to keep overall expenditure under check considering that the revenue flows have been much lower on account of the lockdown which affected tax collections quite sharply. Significant cut down in spending has also been seen in the Ministry of Roads, Transport & Highways which spent only 50% of the budgeted expenditure until September 30 against last year’s 62%. On the revenue side out of the Rs 22.46 trillion of non-debt revenue, only 25% has been garnered as against 40% last year during the first 6 months. The shortfall of 15% is around Rs 3.36 trillion. Last year too there was not much movement on disinvestment and that would be another challenge in the next 5 months. While GST collections have been good in October, a lot depends on the sustainability of the same. Author: Pratap Padode is Editor-in-Chief, Construction World, & Founder, FIRST ConstructionCouncil. Also read: Why India’s GDP is leaking! Also read: We are in the final stages of mining reforms: Pralhad Joshi

    Related Stories

    Gold Stories

    Next Story
    Resources

    NCC Founder and Padma Shri Awardee AVS Raju Passes Away at 89

    Dr Alluri Venkata Satyanarayana Raju, founder and Chairman Emeritus of NCC Limited and a Padma Shri awardee, passed away in Hyderabad on 13 October 2026. He was 89.Born on 18 April 1937 in Antarvedipalem village in Andhra Pradesh's erstwhile East Godavari district, Raju began his entrepreneurial journey in 1956. He established Nagarjuna Construction Company (NCC) Limited in 1978, which subsequently emerged as one of India's leading construction and infrastructure companies.Under his leadership, NCC became a public limited company in 1990 and expanded into one of India's prominent listed constr..

    Next Story
    Infrastructure Transport

    Embraer to Acquire 51 Per Cent Stake in Mahindra Aerospace Arm

    Brazilian aerospace major Embraer will acquire a 51 per cent equity stake in Novavayu Aerospace, a step-down subsidiary of Mahindra and Mahindra, under an Investment Agreement notified by the automobile company in an exchange filing. The transaction will give Embraer control of the aerospace business. Following completion of the acquisition, Novavayu Aerospace will cease to be a wholly owned subsidiary and become an associate of Mahindra Defence Systems, which is a step-down wholly owned subsidiary of Mahindra and Mahindra. The agreement is expected to be completed on or before December 1. Mah..

    Next Story
    Infrastructure Urban

    RBI Opens Special Dollar Window for Three State-Run OMCs

    The Reserve Bank of India (RBI) has opened a special facility to meet the entire daily US dollar requirements of three public sector oil marketing companies (OMCs), in a move aimed at easing pressure on the Indian rupee. The facility will take effect on October 12, 2026, and remain available until further notice. Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation are eligible to use the arrangement. Under the facility, the RBI will sell US dollars to the three companies through designated banks, allowing them to meet their oil-import payments without sourc..

    Advertisement

    Subscribe to Our Newsletter

    Get daily newsletters around different themes from Construction world.

    STAY CONNECTED

    Advertisement

    SPECIAL OFFER
    QR Code