GST hurts India Inc profits

Sanjeev Sharma

Tribune News Service

New Delhi, August 22

Profitability of India Inc has been hit by uncertainties due to the implementation of the Goods and Services Tax (GST) and the destocking of goods that followed which is also expected to slow down the GDP growth for the first quarter of financial year 2018.

Ratings agency, ICRA said today that GVA growth will slow down to 6.3% in Q1 FY2018 from 7.6% in Q1 FY2017 due to transitional challenges posed by GST, rupee appreciation and sector-specific issues. ICRA expects GDP to rise by 6.1% in year-on-year terms.

CARE Ratings said in a report that the performance of a sample of 2,108 companies over the last quarter (April-June) 2017 period reveals a negative picture, with net sales showing slower growth and net profits growth showing deterioration.

The agency said this slowdown in industry performance can be attributed to the uncertainties revolving around the implementation of Goods and Services Tax (GST) from July 1, 2017. It said most companies were destocking goods before July 1 and operations were impacted quite markedly.

A recovery in corporate earnings has become elusive with another weak quarter of India Inc results. Corporate results which are seen as an indicator of economic activity were expected to improve but the GST impact has led to a strong recovery in the economy post demonetisation getting pushed further into the fiscal year.

Motilal Oswal Securities said in a note that earnings recovery remains elusive as the Q1FY18 earnings season marked another quarter of weak performance and a subdued start to FY18.

It said the performance was also hit by GST-related de-stocking in several consumer-oriented sectors —    auto, FMCG, healthcare and consumer durables. Destocking-driven volume and top-line miss exacerbated the impact at operating profit levels.