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Q3FY21 corporate performance points at robust manufacturing growth

The CSO is scheduled to release GDP numbers for Q3FY21 and Second Advance Estimates for FY21 on 26 Feb 2021. Ahead of the data release, we analyse 1,722 manufacturing companies’ quarterly results for Q3FY21 to assess how the sector has performed during the quarter.

Our analysis shows the following:

* Manufacturing companies posted flat year-on-year income growth in Q3FY21: Total income of our sample companies recorded flat growth in Q3FY21 in year-onyear terms. This comes on the back of -39% and -10% year-on-year growth in total income in Q1 and Q2FY21 respectively. This indicates that manufacturing sector’s performance is normalising after recording sharp contraction during H1FY21 which marked the worst of Covid-19 related lockdowns and restrictions.

* Petroleum sector records large decline in total income: Within manufacturing, petroleum sector’s total income grew -10% year-on-year in Q3FY21, reflecting falling international crude oil prices. Food manufacturing companies also recorded modest decline in total income despite rising net sales. On the other hand, ‘metals’ and ‘machinery and equipment’ manufacturing companies recorded 15% and 12% yearon-year increase in total income, partly due to low base.

* While expenditure declines 4% in Q3FY21: Manufacturing companies’ expenditure grew -4% year-on-year in Q3FY21 on top of a -39% and -14% growth in Q1 and Q2FY21 respectively. Again, petroleum manufacturing companies’ expenditure declined the most, recording -13% growth in Q3FY21 due to lower international crude oil prices. All other components of manufacturing viz. food, textiles, metals and machinery & equipment recorded increasing expenditure due to rising input prices and wages. There was also evidence of large inventory drawdowns in many sectors. As a result, PBT of our sample companies surged 48% year-on-year in Q3FY21.

* GVA-equivalent records robust growth; indicates strong manufacturing growth in Q3FY21: Our calculation shows that GVA equivalent of manufacturing companies (i.e. wages + depreciation + interest + PBT) grew a robust 17% year-on-year in Q3FY21, after a -29% and 9% growth in Q1 and Q2FY21 respectively. Hence, we expect manufacturing sector to record healthy growth in the upcoming Q3FY21 GDP data release.

* Rising oil prices likely to boost manufacturing performance in Q4FY21: Continued normalisation in economic activity and sustained pick-up in demand are likely to help manufacturing sector perform well in Q4FY21 as well. Moreover, oil prices have started increasing. Lower oil prices played a major drag on manufacturing sector performance in Q3FY21. With rising oil prices, we expect this trend to reverse. Hence, rising oil prices are likely to provide a significant tailwind to manufacturing growth in Q4FY21.

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