Introduction of the Goods and Services Tax (GST) has hurt revenue growth and led to a major contraction in profit margins for India Inc, which was just coming out of the demonetisation reverses, a report said today.
The growth in aggregate revenues of 448 companies slowed down to 5.3 per cent over the preceding January–March period as against the 8.3 per cent growth witnessed for the quarter-ago period and 10.6 per cent in the year-ago period, said the report by domestic ratings agency Icra.
It was a much pronounced impact on the bottomlines, with the margins contracting by as much as 1.80 per cent to 15.7 per cent on a year-on-year basis, one of the slowest in many years, the report said.
“Lower primary sales ahead of the GST roll-out and discounts offered by companies to clear pre-GST inventory, played a key role in depleting earnings, especially in sectors like automobiles, consumer durables and Fast Moving Consumer Goods (FMCG),” it said, explaining the margin impact.
The impact in performance has happened when corporate India “had started showings signs of recovery from the demonetisation move,” Icra said.
This was largely because consumption-oriented sectors witnessed a de-stocking ahead of the implementation of the GST—the biggest indirect tax reform—from July 1, it said.
Apart from the GST, recovery in raw material prices, especially metals and rubber also led to contraction in earnings across few sectors, while sector-specific dynamics like increasing competitive pressure in telecom and regulatory hurdles in pharmaceuticals played a spoil sport, it said.
A recovery in raw material costs also contributed to margin pressure, especially in the automobile sector, which also had carry over impact of transition to BS–IV, the ratings outfit said.
For the telecom sector, it was the aggressive play by new entrant Reliance Jio that impacted other companies, it said, adding cost of data services tumbled by up to 50 per cent during the quarter.