The Indian corporate sector has witnessed a gradual recovery back to normalcy after experiencing major Covid-19 pandemic induced disruptions and the resultant two-month long nation-wide lockdown, said rating agency ICRA on Wednesday.

The restrictions imposed to combat the pandemic in Q1FY21, resulted in an unprecedented 33 per cent revenue contraction, it said.

An ICRA analysis of financial results of 587 companies in the Indian corporate sector, excluding financial sector entities, showed aggregate revenues saw growth of 34.9 per cent in Q2FY21 from Q1FY21 levels, although remaining lower by 6.5 per cent on a YoY basis.

Besides, margins too have registered an improvement during the second quarter.

“During Q2 FY2021, sequential recovery from Q1 FY2021 levels was visible across sectors as the restrictions eased, and some sectors were even able to bounce back to pre-Covid levels and report revenue growth on a Y-o-Y basis,” said Shamsher Dewan, Vice President – Corporate Sector Ratings, ICRA.

“Among consumer-oriented sectors, although large-ticket discretionary purchases like leisure travel and lifestyle retail continue to remain on the back-burner due to risk aversion and general uncertainty, the demand in several other sectors, including passenger vehicles, two-wheelers, consumer durables etc. have bounced back over the past few months.”

“Essential goods like FMCG and consumer foods were not impacted materially even in the midst of the lockdown, given their essential nature and continue to remain so.”

Among other sectors, the analysis report cited that commodity-oriented sectors such as cement, iron & steel and metals & mining sectors also reported sequential and YoY recovery, supported by firming up of commodity prices as well as volume expansion; and aided by a pick-up in industrial activity.

“Industrial and infrastructure-oriented sectors, on the other hand, while exhibiting sequential recovery, are yet to reach their year-ago levels, and contracted by 11 per cent and 14 per cent on a Y-o-Y basis respectively during the quarter,” the analysis report said.

“Select sectors such as IT, reported muted revenue growth of 4 per cent in INR terms, although organic growth was impacted by deceleration in key verticals. Sectors like pharmaceuticals, power and telecom also recorded Y-o-Y revenue growth.”

On the profitability front, the report said that India Inc delivered a positive performance, with both operating profit and PBT margins at multi-quarter highs.

“Many entities aggressively rationalised costs through salary cuts, downsizing of workforce, renegotiation of rentals and interest rates, curtailment of overheads such as travel and conveyance etc. from the first quarter itself in order to survive the challenging period.”

“The benefits of these percolated into the second quarter, which coupled with sequential recovery in revenues, aided significant recovery in margins.”

Accordingly, PBT margins expanded on YoY as well as sequential basis to 9.1 per cent during the quarter.

However, ICRA said it did not expect these margin levels to sustain, given the raw material headwinds due to the firming up of commodity prices, and the gradual reversion of costs to pre-pandemic levels.