Manufacturing sector grows with supports from iron & steel sales

Manufacturing sector witnessed yoy improvement in sales growth during the second quarter of FY18, according to data released by RBI. This growth was mainly driven by industries like iron & steel (34 per cent yoy growth), chemical & chemical products (8 per cent yoy growth), pharmaceuticals & medicines (3.5 per cent yoy growth) and motor vehicles & other transport equipment (19 per cent yoy growth).

Sales of the non-IT services sector declined after a temporary revival in the previous quarter mainly due to the poor performance of real estate (4.8 per cent yoy decline), telecommunication companies (17.6 per cent yoy decline) and Video & Television Programming and Broadcasting (24.5 per cent yoy decline).

The manufacturing companies got some relief from raw material cost pressures as evidenced by the moderation in the cost of raw material. However, the employee cost rose at a higher rate. Operating profits of the manufacturing sector recorded a healthy growth after reduction in the previous quarter.
 
During the second quarter of FY18, interest expenses surge substantially at the aggregate level and for the manufacturing sector. Within the manufacturing sector, the cement & cement products (Rs. 28 billion in Q2FY18 versus Rs. 1.5 billion in Q2FY17) and textile companies reported a significant rise in interest expenses growth in-line with the increase in overall debt levels of these companies.

In terms of bottom-line, the higher interest expenses and higher tax provision coupled with the lack of support from other/non-operating income lead to in lower net profits for the manufacturing sector compared to corresponding quarter of last year. Looking at the aggregate performance of all companies, we found that there was net loss of Rs. 23.1 billion as against Rs. 16 billion net profit.