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Few macro lessons from the 3QFY21 corporate results

Record-high EBITDA margins fuel equity markets

The RBI released the 3QFY21 financials of listed non-government non-financial (NGNF) companies. Here are the key highlights:

* Net sales of the listed NGNF corporate sector (comprising about 2,700 companies) grew for the first time in six quarters by 4% YoY in 3QFY21. After falling for five successive quarters, total expenditure also grew 2.7% YoY in 3Q. Corporate sales are strongly correlated with the WPI measure of inflation (Exhibits 1, 2).

* The interest coverage ratio improved to nine-year highs (this data is available only since FY12) of 4.5x in 3Q vis-à-vis 3.4x a year ago (Exhibit 3).

* The EBITDA margin also stood at record highs of 22.6% in 3QFY21 vis-à-vis 18.3% a year ago (Exhibit 4).

* After contracting in 1HFY21, employee costs grew 2.7% YoY in 3QFY21, implying the fourth successive decline in real terms (Exhibit 5).

* The listed corporate sector has gained massively during COVID-19 vis-à-vis decline in the rest of the economy (RoE). The gross value-added1 (GVA) of the listed non-financial companies2 (NFCs) rose 14% YoY each in 2QFY21 and 3QFY21, which implies that GVA of RoE increased 3.4% last quarter (following decline of 6.7% in 2QFY21) (Exhibit 6).

* Listed NFC GVA, however, accounts for just ~9% of national GVA (Exhibit 7) and almost a quarter of the entire NFC GVA in the economy. Buoyancy in the former is reflected in the equity markets as well, but this does not necessarily imply the same buoyancy in the economy.

* Lastly, the distribution of listed corporate GVA by factors of production reveals that the share of entrepreneurs (measured by PBT) stood at 40.5% of GVA, the highest since the availability of quarterly data from 3QFY12. Consequently, the share of entrepreneurs rose to 32.5% over Apr–Dec’20, from 31% in FY20, while it fell to 37% (from 39%) of GVA for the workers (Exhibit 8).

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