India Inc. staring at 10 pc revenue decline, 15 pc profits erosion in FY 21: CRISIL

Domestic rating agency CRISIL on Thursday said that India Inc. is staring at a bleak and forgettable fiscal year 2021, which is likely to see a 10 per cent fall in revenues and at least 15 per cent erosion in profits due to the COVID-19 pandemic.

CRISIL's research wing said, loan servicing can become difficult as a result of the troubles, estimating banks' non-performing assets (NPAs) to rise by up to 2 percentage points, to 11.5 per cent, and credit growth to slow down to 2 per cent.

The country, at present, is under a 40-day lockdown, which will end on May 3, 2020, and there are indications of it being gradually withdrawn.

The ration agency has estimated that a month's lockdown can shave off 3 percentage points of the gross domestic product (GDP). It also warned that its base case of 1.8 per cent growth for FY21 may fall to zero if the lockdown continues.

Dharmakirti Joshi, the chief economist at CRISIL, said up to 4 per cent of the GDP will be lost permanently as a result of the crisis, which will lead to scores getting unemployed. He added, the announced fiscal support of Rs 1.7 lakh crore till now is inadequate to fight the crisis. He explained that countries with more fiscal space can afford to have longer lockdowns, while countries with a limited room like India will have to gradually open up to support the economy, and added that the containment measures should ease off by June.

It, CRISIL, expects a doubling of the stimulus to Rs 3.5 lakh crore with a focus on the industries segment in the second phase. Apart from the spending measures, there can be others like loan guarantees also, it said.

However, the agency seemed to suggest that India Inc will be badly impacted due to the crisis.

Crisil Research's senior director Prasad Koparkar said, this is an unprecedented and numbers that we are estimating are historic, which you would like to forget sooner. Adding to it, he said, the estimates for fiscal 2020-21 is based on the analysis of 800 firms across sectors.

It expects India Inc's revenue growth to fall 8-10 per cent in the base case of 1.8 per cent growth and slide further to 12-15 per cent if the GDP is stagnant. The study says that the more pronounced impact will be on profitability as it expects a 15-18 per cent decline in operating profit margins in the base case, which can go up to 30 per cent in the downside scenario.

As a result of this, credit metrics are set to weaken during the fiscal, Crisil said, pointing out that the level of the Rs 16 lakh crore corporate debt that stands the risk of slipping into being stressed will go up to 32 per cent from the earlier level of 22 per cent.

Sector-wise Highlights

♦ Bank Credit Growth - To slow down to 2-3 per cent.

♦ Retail Segment: It will slow down as housing, auto and commercial vehicle sales suffer.

♦ NPAs: The heightened stress and the slow credit growth will take the overall NPAs to up to 11.5 per cent, a level last seen in FY18 after the asset quality review of the Reserve Bank of India (RBI). It says that the NPAs will be higher both on fresh slippages and also slower resolutions through mechanisms like National Company Law Tribunals. NPAs in the retail segment will also rise as the spectre of unemployment plays out.

♦ Telecom: A double-digit revenue growth is expected on the back of the 40 per cent hike in tariffs that was introduced last year.

Segments that will suffer the most includes auto components, real estate, gems and jewellery, construction, airlines, textiles, poultry and meat business

Segments that will suffer least include pharma, telecom and direct to home players in media.