- The study includes impact analysis of COVID-19 disruptions on the companies’ reporting calendar, profitability, financial position, liquidity, disclosures and other key parameters
New Delhi, 16 August 2020: 159 BSE 300 companies noted INR 22,538 crore (-15% on average) decrease in earnings before interest, tax, depreciation and amortization (EBIDTA) in the March 2020 quarter compared to the preceding December quarter, 2019 as early impacts of pandemic and resulting changes in macro-economic factors, according to ‘Early impacts of the COVID-19 pandemic on Indian corporate reporting’, a study by EY India.
EY India performed a review of March quarter reporting of top BSE 300 Indian companies and 115 global companies spanning over 12 sectors to evaluate the impact of COVID-19 disruptions on their reporting calendar, profitability, financial position, liquidity, disclosures and other key parameters. The objective of the study was to understand the impacts across different sectors and changes in other macro-economic factors during this period. It also contextualizes the pandemic’s tangible potential impacts in the times to come. The analysis relies on details of the pandemic’s impact as presented by companies in their results or any public document pertaining to their quarterly reporting.
The analysis highlighted that most of the companies, across sectors have experienced a material impact, on some if not all key financial performance indicators such as EBITDA, revenue, debt and interest service coverage, provisions, profitability as well as earning per share (EPS). The sectors experiencing significant negative influence of pandemic and unfavourable macro-economic changes are BFSI, aviation, automotive, power, oil & gas and travel. Pharmaceuticals, Healthcare and Telecom (barring AGR dues provisions) have shown positive growth during these difficult times.
Sandip Khetan, Partner and National Leader, Financial Accounting Advisory Services (FAAS), EY India said, “Corporate reporting has become key, like never before, to earn the trust of the investors and other stakeholders, particularly in current environment where stakeholders are seeking information on the disruptions of current financial standing of an organization due to COVID-19. We are witnessing a significant shift in investor communication strategies, content and frequency by companies during COVID times. The pandemic has pushed investor communication to newer heights by making the corporate world answerable on many indicators other than financial numbers. However, to really push the transparency agenda, a wider shift in attitude is required. Transparent, forward-looking and timely reportingꟷ based on balance between financial and non-financial dataꟷ is the need of the hour.”
One of the primary reasons for the negative impact on EBITDA and profitability was the significant increase in provisions around credit loss, impairment, inventory write downs and additional impact of Covid-19. Overall, 17,000 crores of credit loss provision by Banks, financial services and Insurance (BFSI) sector, 2,000 crores of impairment provision significantly contributed by Power, metal and mining sectors and 5500 crores of inventory write downs by oil & gas sector, in aggregate, built up approximate 25,000 crores of provisions for 159 of top BSE 300 companies for March, 2020 quarter. Comparatively, it is notable that 115 global companies in turn have reported in aggregate 2,52,000 crores of provisions on account of these reasons.
7 out of 159 Indian companies have disclosed revenue loss due to 10 days of the lockdown within a range of 100 to 600 crores. Some companies have reported that their revenue and profits have been hit negatively but cannot be quantified. The more tangible view on impacts on financial results will come into light once companies report their June, 2020 quarter.
A number of companies and their auditors have reported that they expect uncertainties around key accounting estimates and judgements including revenue collectability and accounts receivable credit losses in future periods, depending on the duration or degree of the impact of the COVID-19 pandemic on the global economy. Auditors of 99 out of 159 companies studied have either stated Emphasis of Matter (EOM), Key audit matters (KAM) or even qualification to reflect these uncertainties.
The study also reveals that there have been significant deferrals in reporting March 2020 quarterly results (on account of timeline extension by SEBI twice) as compared to March 2019. It is notable that as on 5 June 2020, 141 out of BSE 300 companies (47%) were yet to declare their results. 66 out of 159 companies’ studies were delayed by more than 10 days, while 41 companies actually manged to declare results for March 2020 earlier compared to March, 2019,
Sandip Khetan added, “Albeit, the world has changed in many ways and financial reporting is not an exception. Due to the pandemic, the unlikely positive impact on the environment is driving a shift towards larger focus around sustainable organizations and reporting around the same. We are also seeing an uptake in advanced technologies along with an enormous shift in behavioural changes with respect to how companies deal with financial reporting, management reporting, controls and more importantly, their communication with the stakeholders.”
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