Enterprise to pay biggest price for demonetisation

by Mahesh Vyas

Enterprise is expected to pay the biggest price of the demonetisation exercise.

Enterprise includes all businesses that produce goods and services and are involved in the entire supply chain of these. It includes farmers, input suppliers, transporters, wholesalers, retailers, manufacturers, stockists and distributors, malls and other retail outlets, restaurants, entertainment and other enterprises.

The entire supply chain of goods and services stands to suffer a massive liquidity shock. The received wisdom is that a large part of the Indian supply chain is cash-based. This cash-based economy is unable to continue transactions because of the sudden fall in availability of cash. It is unable to meet business and financial obligations and unable to liquidate stocks and receivables into cash. In fact, it is very busy dealing in converting the old currency it used to conduct business hitherto.

The impact of a broken supply chain would play out over several quarters. It would impact capacity utilisation of manufacturing companies and employment as well. Over the medium-to-long term this will impact investments as well. Our effort here is to limit our assessment to the 50-day window when the damage is only because of a sharp fall in immediate liquidity availability.

This immediate impact would be in the fall in sales because of a fall in liquidity. Households would reduce discretionary consumption spending during the 50-day period. We estimate this fall by using the household consumption expenditure data available in CMIE’s Consumer Pyramids survey.

The annual consumption expenditure of households is estimated at Rs.31 trillion. Of this, Rs.22 trillion is non-discretionary expenses such as basic food items, house rent, water charges, transport, communication, education, medicines, EMIs, etc. Discretionary expenses which include intoxicants, clothing, cosmetics, home appliances, restaurants and recreation account for about Rs.9 trillion.

Most of the discretionary spending is in cash. Excluding those expenses that are clearly non-cash does not make a material difference to the estimate of discretionary expenses.

The above leads to an estimate of an average spend of Rs.12 billion by households on cash discretionary items. It is this 12 billion rupees market that is severely hit by the liquidity crunch. We expect this market to take a 50 per cent hit during the 50 day period. This translates into a loss of Rs.615 billion.

The impact of this loss would reverberate through the supply chain over time. But, the immediate impact would be of the order of Rs.615 billion. For comparison, the combined sales of 69 FMCG companies in 2015-16 was Rs.2.7 trillion.

CMIE STATISTICS
Unemployment Rate
Per cent
4.8 -0.0
Consumer Sentiments Index
Base September-December 2015
93.0 +0.8
Consumer Expectations Index
Base September-December 2015
91.0 +0.6
Current Economic Conditions Index
Base September-December 2015
96.0 +0.9
Quarterly CapeEx Aggregates
(Rs.trillion) Dec 16 Mar 17 Jun 17 Sep 17
New projects 2.32 3.77 2.02 0.88
Completed projects 1.00 1.91 1.13 0.70
Stalled projects 1.13 0.70 2.66 0.64
Revived projects 0.18 0.67 0.29 0.14
Implementation stalled projects 0.82 0.33 0.67 0.50
Updated on: 20 Oct 2017 12:20PM
Quarterly Financials of Listed Companies
(% change) Sep 16 Dec 16 Mar 17 Jun 17
All listed Companies
 Income 2.1 6.2 10.2 10.2
 Expenses 1.9 6.3 11.9 10.5
 Net profit 14.6 40.3 16.8 -18.9
 PAT margin (%) 6.9 6.1 6.1 5.4
 Count of Cos. 4,503 4,503 4,427 4,257
Non-financial Companies
 Income 0.6 5.9 11.8 10.9
 Expenses -0.2 7.2 15.5 11.1
 Net profit 26.7 24.6 -1.1 -24.3
 PAT margin (%) 6.9 6.2 6.3 5.3
 Net fixed assets -9.2 7.5
 Current assets 8.1 2.1
 Current liabilities 11.7 8.5
 Borrowings 3.1 4.9
 Reserves & surplus 8.4 6.5
 Count of Cos. 3,476 3,482 3,432 3,324
Numbers are net of P&E
Updated on: 20 Oct 2017 12:30PM
Annual Financials of All Companies
(% change) FY13 FY14 FY15 FY16
All Companies
 Income 12.6 10.0 5.0 1.0
 Expenses 12.8 9.9 5.1 1.2
 Net profit 1.0 -2.2 1.1 -15.2
 PAT margin (%) 3.5 3.2 3.2 3.0
 Assets 14.3 12.3 9.4 8.8
 Net worth 9.6 9.6 8.8 7.7
 RONW (%) 6.8 6.2 6.1 5.3
 Count of Cos. 25,932 23,621 23,131 19,375
Non-financial Companies
 Income 11.9 9.7 4.1 0.0
 Expenses 12.3 9.3 4.3 -0.6
 Net profit -8.4 -2.4 -6.3 6.5
 PAT margin (%) 2.4 2.2 2.1 2.7
 Net fixed assets 12.9 11.6 13.1 13.9
 Net worth 7.9 8.2 7.3 7.0
 RONW (%) 5.5 5.1 4.9 5.6
 Debt / Equity (times) 1.1 1.1 1.1 1.0
 Interest cover (times) 2.1 2.0 1.9 2.0
 Net working capital cycle (days) 72 69 67 67
 Count of Cos. 20,312 18,893 18,620 15,945
Numbers are net of P&E
Updated on: 21 Sep 2017 10:15AM

Time-series available since 2007-08