Covid 19 will induce consolidation, big firms will only get bigger

Covid 19 will accelerate a second wave of consolidation in India Inc and the big will get bigger as the unorganised players have been losing marketshare since demonetisation and goods and services tax (GST).

An important reason is that organised companies with cash rich/low leverage are much better placed to tide over the Covid-19 crisis.

A second wave of consolidation is underway following the first one during demonetisation, a research by BofA Securities said.

Higher compliance costs, plug of tax leakages and liquidity issues have reduced share of unorganised players since GST and demonetisation.

At the same time, organised players have gained through efforts to directly reach retailers, consumers, digitise distribution, and access institutional funds.

This is evident as several categories have seen consolidation through share gains for top four-five players. The AC industry is an example and a similar trend is visible in retailing.

This is being seen as a trend with marketshare of top players in categories like home care, deodorants, tissues and hygiene and residential real estate.

Covid-19 is to accelerate consolidation, the report says as share of unorganised players across many industries still remains high and provides ample scope for continued consolidation in favour of organised players.

Organised companies with cash rich/low leverage are much better placed to tide over Covid-19 crisis and support channel partners with extended credit through channel financing arrangements which have gained traction over recent years.

The big companies getting bigger is a theme which has been playing out. The 20 most profitable firms in India now generate 70 per cent of the country's profits and the growing dominance of a handful of very large companies in India is changing the template of capitalism in India, according to a research by Marcellus Investment Managers.

The research says that 20 most profitable firms in India now generate 70 per cent of the country's profits, up from 14 per cent 30 years ago.

An earlier blog had highlighted how in several sectors in India, one or two companies account for 80 per cent or more of the profits generated.

“India is already an economy with extraordinary levels of profit share concentration in many key sectors. For example, in paints (Asian Paints, Berger Paints), premium cooking oil (Marico, Adani), biscuits (Britannia, Parle), hair oil (Marico, Bajaj Corp), infant milk powder (Nestle), cigarettes (ITC), adhesives (Pidilite), waterproofing (Pidilite again), trucks (Tata Motors, Ashok Leyland), small cars (Maruti, Hyundai), we already have one or two companies accounting for 80 per cent of the profits generated in the sector. Now this trend looks likely to spread to more fragmented sectors where hitherto the unorganised players had greater profit share,” it had said..