Impact

ICRA’s Prediction, COVID-19 Impact To Be Severe, Prolonged For Aviation, Hospitality, Retail Sectors

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According to ratings agency ICRA, The coronavirus pandemic will significantly impact performance of companies and it is likely to be severe and prolonged for select sectors, especially aviation, hospitality and retail.

The pandemic, followed by extended lockdowns in India both nationally and then localised, has impacted India Inc for the major part of the first quarter of the current financial year.

Although economic activity has started to recover from the troughs experienced in April 2020, when the lockdown was at its severest, the unabated rise in COVID-19 cases in the unlock phase and localised re-imposition of lockdowns in several states have interrupted this recovery in recent weeks, ICRA said in a statement.

“The financial performance of corporate sector would be significantly impacted, as manufacturing, construction, industrial and consumption activities have taken a sharp hit. As per ICRA analysis, the impact is likely to be severe and prolonged for select sectors, especially aviation, hospitality, retail and allied businesses,” it said.

ICRA vice-president Shamsher Dewan said, “Overall, Q1 FY2021 will be a washout for India Inc, with significant pressure on revenues and earnings, considering that the major part of the quarter was under lockdown or gradual ramp-up phase.”

With continuing fixed overheads and virtually no revenues, the earnings and margin profile of the corporate India are expected to have deteriorated quite sharply during the quarter, despite some recovery towards the end, he added.

“Furthermore, with gradual recovery expectations during the rest of the fiscal, and the current subdued macro-economic environment, pressure on earnings and credit profiles are expected to continue over FY2021,” Dewan said.

ICRA said the rapid spread of the pandemic has crippled the economy globally over the past five months, and India is no different. It said India emerged “as the third country globally to report over 1 million cases by July 2020”.

The ratings agency, however, said as per its analysis of high-frequency data points available till July 2020, the trend indicates some encouraging cues of a gradual, yet uneven recovery across different sectors relative to the trough experienced in April 2020.

“Retail sales of passenger vehicles and two-wheelers have touched almost 85 per cent and 60 per cent of pre-COVID-19 levels in July 2020, from a situation of no sales in April 2020. Comparatively, retail tractor sales grew by 35 per cent on y-o-y (year-on-year) basis in July 2020,” it said.

The decline in petrol and diesel consumption has also narrowed sharply to 14 per cent and 15 per cent, respectively, in June 2020 on y-o-y basis from 60 per cent and 56 per cent, respectively, in April 2020, ICRA said.

It added that select indicators linked to movement of goods like FASTag volumes and e-way bill generation were also encouraging, reverting to 70-75 per cent of pre-COVID-19 levels in June 2020.

“In an otherwise bleak environment, the rural recovery has emerged as a bright spot supported by two healthy crop cycles, timely onset of monsoons, healthy reservoir levels and expectations of a healthy kharif output, besides government’s support measures,” Dewan said.

He added that the fact that rural and semi-urban India remained relatively insulated from the pandemic has also aided this resilience, although recent cases of penetration of coronavirus into the hinterlands pose some concerns.

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