At least 70% of Indian companies in the non-financial space may have enough cash to pay salaries to their employees for at least two months, despite the covid-19 pandemic deepening economic stress, consulting and audit firm EY indicated in a study, quoting data from analytics firm EMIS.

Median employee and interest payment costs are only 8% of operating revenue, excluding other fixed costs such as rent, said a 4 May report by EY, which analysed the levels of fixed costs of 8,700 top non-financial companies with a total operating revenue of 134 trillion.

“The low employee cost may be the reason most private companies have enough cash to pay their employees,” a partner of a top Indian legal and consultancy firm said on condition of anonymity.

The lockdown has reduced the operating revenues of companies, but businesses still bear fixed costs such as wages and salaries, interest, rent and depreciation.

However, restrictions on economic activity continue to exert stress on the financial health of companies and if the situation is not tackled in time, it can present new challenges and may cause a prolonged economic slowdown, EY said.

The automobile industry is one of the worst hit in terms of revenues and jobs, said the report. Manufacturing and trading activities in the sector employ 1.1% of India’s workforce.

“Lower transportation use and bottlenecks in auto loans will also impact automobile sales. The sector is also affected by lower imports of automobile and parts, and shutting down of key exports markets,” said the EY report. The employee cost in the auto sector is around 8%, it said.

Construction and real estate, which employs around 12% of the workforce, has also been hurt by the shutdown and a decline in consumer demand, said EY. The average employee cost in this sector is around 6%. “Being capital-intensive, this sector has relatively higher interest costs compared to others,” it said.

Passenger transport services across land, air and water have also been hit. The transport sector accounts for at least 4.93% of the country’s jobs. The average employee cost in this sector is 7.7%, the study found.

Tourism and leisure activities have been impacted, too. EY said this sector has very high fixed costs, with 20% of the revenues incurred as employee costs.

The mining and metals sector faces a double whammy of lower global commodity demand and prices, and a slowdown in key user sectors such as automobile and construction. The sector employs 2.3% of India’s workforce and its employee cost is around 3%.

News Source: Livemint


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