Last year’s Fortune India Next 500 list saw the cumulative profit of the companies decline over 65%, the highest since 2015, when the first list came out. This year, it fell 36%. Not so bad as last year, but not so good either. The Next 500 list is compiled using data of the preceding financial year.
At ₹2,158 crore, Delhi-based Radico Khaitan, saw 15.87% growth in its revenue to top the Fortune India Next 500 list in 2020. In terms of rank, the company made a splendid jump to the top spot from its 28th rank in 2019. While Radico Khaitan’s profit grew 56.61% in a year at ₹194.13 crore, the company was the 49th most-profitable company in the 2020 list.
Compared to rank 36 in 2019, Man Industries (India), with revenue of ₹2,145.32 crore—growth of 18.75%—ranked at number 2 this year. However, its profit fell 7.62% in a year to ₹58.84 crore. And, Vadodara head-quartered INEOS Styrolution India, with revenue of ₹2,145.04 crore was ranked number 3 in 2020, compared to 26 in 2019. While its revenue grew by 14.85%, the company turned loss-making with a net loss of ₹12.47 crore.
What caused a decline in the cumulative profit of the companies? This year 427 companies posted a cumulative profit of ₹41,146.5 crore, but the remaining 73 companies with a cumulative loss of ₹37,535.57 crore erased much of that, leaving just ₹3,610.93 crore as the net profit of theNext 500. Some of the latter happened to double their losses from the year-ago period: Aban Offshore, No. 332 (down from No. 110in 2019), reported a net loss of ₹5,273.45crore in FY19 which was twice its FY18 loss of ₹2,606.48 crore; Essar Shipping, at No.177 (down from No. 72 last year) reported a net loss of ₹3,775.3 crore, over 2.25 times itsFY18 loss of ₹1,664.83 crore.
It didn’t help that new entrants Kwality (No. 45) and IL&FS Engineering &Construction (No. 207) posted losses of ₹3,216.15 crore and ₹2,036.45 crore, respectively. Kwality and IL&FS Engineering & Construction failed to make it to last year’s Fortune India 500 list owing to a decline of 73.11% and 41.34%, respectively, in theirFY19 revenues. Besides them, 16 other companies with declining revenues slipped to the Next 500 list after failing to make the cut for the 2019 Fortune India 500 list.
Among the 73 companies which posted losses, 49 had reported net losses in FY18as well. But the good news is that their cumulative loss declined to ₹31,621.33 crore in FY19, compared to ₹48,284.54 crore inFY18. The balance 24 loss-makers this year posted a cumulative loss of ₹5,914.34 crore against a cumulative profit of ₹3,278.26crore last year. The silver lining was 17companies which posted a cumulative profit of ₹855.53 crore against their cumulative loss of ₹1,062.08 crore last year.
Like last year, the list saw heavy churn. The number of new companies this year stands at 119, compared to last year’s 163. As many as 33 companies from last year’s Next500 list entered the Fortune India 500 club in 2019.
Besides the elevation of the 33 companies, the 2019 Fortune India 500 list also had a new leader. Reliance Industries(RIL) displaced Indian Oil Corporation to top the list. A comparison between RIL and companies on the Next 500 list is interesting. RIL’s FY19 revenue of ₹5,80,553 crore accounts for 94.25% of the cumulative revenue of this year’s Next 500 list—₹6,15,988.88 crore. And RIL’s profit of ₹39,588 crore is 10.96 times higher than the Next 500 companies’ cumulative profit of ₹3,610.93 crore.
The other way to compare the variation between the ‘largest’ and the ‘midsize’ companies is average revenue and profit of the respective lists. Against the Fortune India Next 500 list’s average revenue and average profit of ₹1,231.98 crore and ₹7.22crore, respectively, that of the 2019 Fortune India 500 list are ₹18,358.9 crore and ₹910.59 crore. Given that an average Fortune India 500 company clocks 14.9 times higher revenue and 126.09 times higher profit in comparison with an average Fortune India Next 500 company, the challenges that the latter faces hardly needs any explanation.
Amid the decline in the cumulative profit of the Next 500 companies, the 10.77%increase in their cumulative revenue is a big improvement when compared to last year’s1.45% decline. The list also shows ample signs of maturity as the last company on this year’s list clocked a revenue of ₹663.78 crore compared to ₹567.69 crore, the revenue of last year’s 500th company.
Like earlier years, the manufacturing sector with 368 companies accounted for73.4% of the total revenue of the Fortune India Next 500, while services (97), and diversified and construction companies (35) accounted for 19.4% and 7.2%, respectively. The trend in the increase in services companies is encouraging, given that their count jumped from 80 in 2018 to 96 in 2019 to 97 this year. Of this year’s119 new entrants with a cumulative revenue of ₹1,44,311.37 crore, 28 service sector companies with a cumulative revenue of ₹32,160.87 crore account for 22.29% of the new companies’ cumulative revenues.
For investors, it was mixed tidings. The total dividend outgo at ₹3,789.96 crore jumped over 113% this year, compared to last year’s 32.3% annual decline at ₹1,778.96crore. But this had more to do with the new Ind-AS rules, where the dividend is accounted in the year of actual payment and not in the year they are proposed. Another positive was that the number of dividend-paying companies on the list—which declined from 283 in 2017, to 111 in 2018, to 69 in 2019—has marginally increased to74 this year. And 20 of these 74 dividend-payers are debutants on this year’s list and they together account for 56.69% of the total dividend outgo.
Employee costs, too, have gone up this year for the Next 500 companies. They jumped 16.29% this year against 0.42% last year. While last year’s employee cost worked out to 10.62% of the total revenue, the ratio this year stood higher at 11.14%.
While this year’s Next 500 companies registered double-digit growth in total revenue and the percentage decline in profit more than halved when compared to last year, they have challenging times ahead. Given the precarious situation of the economy now, it will be some time before the tide turns. Time to brace up.
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This story was originally published in the March 15-June 14 special edition of the magazine.