Small businesses suffer as large ones grow

The coronavirus pandemic has dealt a severe blow to small businesses, so much so that even after almost two years after the event began, they are struggling to survive. To understand the gravity of the situation, investors need to look at their earnings for the September quarter.

A size analysis carried out by Care Ratings Ltd on the basis of net sales shows that improving company performance is skewed in favor of larger companies.

The rating agency analyzed quarterly earnings results for 2,113 companies spanning around 40 industries and covering the last five quarters as well as the pre-crisis period, ie Q2 FY20. It should be noted that this analysis does not include companies in the banking and financial services sector.

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Small is not beautiful

Large companies represent 34% of the sample size and account for 96% of net sales, 96% of operating profit and 98% of after-tax profit in Q2 FY22, the analysis showed. In addition, large companies have seen their sales volume, operating profits, and after-tax profits surpass pre-pandemic levels in September 2019. Micro-enterprises, on the other hand, have seen a sequential decline in earnings. sales and their sales volume is much lower in September 2019 and that too by more than 70%. These companies represent about 15% of the sample, according to the report. With the exception of micro-businesses, there was a sequential improvement in net sales, operating profit and profit after tax in the last quarter, the Care Ratings report added.

Analysts say small businesses have faced a double whammy of weak demand and high cost pressures after the pandemic. This led to strained working capital requirements and increased indebtedness, which took a toll on their overall finances. Simply put, the big ones are getting bigger and bigger due to the accelerating pace of consolidation across all sectors.

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