MUMBAI: India Inc has reported a doubling of profit after tax in FY21 despite a 5% dip in the top line on the back of a lower tax rate and a sharp drop in interest costs.
A report by SBI’s economic research department said that around 4,000 listed entities reported a 5% decline in the top line, but their ebitda (earnings before interest, depreciation, taxes and amortisation) rose 24% while their profit after tax jumped by 105%. “Most importantly, 15 sectors have now reduced loan funds by around Rs 2.1 lakh crore during pandemic year FY21. Sectors such as refineries, steel, fertilisers, textiles, mining, etc, have reduced their loan funds in the range of 6% to 64% in FY21,” the report said.
According to the report, the reduction in the effective tax rate (ETR) in FY20, coupled with a prolonged period of a low-interest rate regime fuelled by the coronavirus seems to have been a blessing in disguise for India Inc during the pandemic year. Last year, the government reduced the ETR for companies to 26% from 35% in FY20.
However, the actual tax paid increased by more than Rs 50,000 crore. Many sectors including engineering, realty, automobiles and trading had reported an ETR reduction in the range of 1-24% in FY21 as compared to FY20.
Despite this, tax collections in FY22 were at record highs. Sectors like cement, tyres and consumer durables showed significant contribution of even over 50%, the report said. An extended period of low interest rate has also helped companies in massive deleveraging and contributed on an average 5% to the overall top line.
Sectors like consumer durables, healthcare and cement have benefited the most. In terms of expenditure reduction, the overall contribution on top line has been as much as 31%. Sectors like apparel and refineries have cut costs by as much as 107% on average.
While financing costs came down, the increase in commodity prices pushed up expenditure in sectors like metals and agrochemicals. Employee costs on average have been cut by 3% in FY21. The maximum cut in employee costs has been in sectors facing the consumers.
According to SBI, the improved tax collections will widen the gap between gross domestic product and gross value added as GDP growth would be buoyed by the improved tax collection. The report said that an extended period of accommodative policy, as hinted by the RBI, augurs well for better corporate results.
