India Inc results: Double-digit bottom line, single-digit revenue growth

Powered by smaller debt servicing obligations and stable costs of inputs, mostly from manufacturing entities, India Inc has managed to register more than 10% growth in aggregate net profits for Q3 in the current financial year, the shine of which has somewhat been impacted by single-digit revenue growth for the third quarter on the trot, The Economic Times has reported.

The newspaper has culled from a sample of 3,381 companies that revenue has gone up by 8.2% (Y-o-Y) in Q3 (October-December). The rate of revenue growth was 17.3% — more than double — in the same quarter in FY23. The growth in net profit registered 25%, albeit on a smaller base of 2.2% rise in Q3 in FY23. The rate of growth in the bottom line was more than the psychological mark of 10% for all three quarters in FY24.

The revenue growth of India Inc in the three quarters in FY24 stood at 5.3% (Q1), 5.9% (Q2) and 8.2% (Q3). However, excluding the banks and NBFCs, the rate of revenue growth dipped to 0.9, 1.6% and 4.5% in three respective quarters. The report also forecasts pre-poll volatility in performance in these companies.

By clocking such a pace of growth in net profits, India Inc has taken most analysts by surprise. “The corporate earnings have been fairly above our expectations. This was led by domestic cyclicals such as automobiles and financials along with global cyclicals, including metals and oil and gas,” Gautam Duggad, institutional research head, Motilal Oswal Financial Services told the newspaper.

HDFC Securities retail research head Deepak Jasani concurred with Duggad and said, “Companies delivering higher growth in the past disappointed while a lot of companies reported improved growth for the first time in recent months.”

The analysis threw up some interesting facts. Growth in revenue crawled at 4.4% in one excluded banks and finance companies, which mirrored sluggish performance of non-lending companies. However, lower interest payments boosted net profit to growth of 35.3%.

Interest as a percentage of profit before interest and tax (PBIT) declined to 22.3% from 25.1% in the same quarter (Q3) in FY23. For the total sample that includes lending companies, the ratio of interest as a share of PBIT expanded from 44.9% to 48.8%. It was an indication that deposits are becoming costlier that are also impacting interest margins.

The effect of higher deposit costs also left its mark on the aggregate operating margins. The operating margin for non-lenders, rose by 1.90 percentage points (y-o-y) basis to reach 15%. The rise was higher than the 0.1 percentage point growth in the margin of the entire sample. If one considers a sequential comparison, in the case of non-lenders with a contraction of 150 bps.

Operating margin rose by 0.1 percentage point to reach 17.3% (y-o-y) in Q3. But sequentially the margin fell by 1.60 percentage point making it the second successive quarter of contraction. This bore a clear signal that the emollience of stable input costs was gradually eroding on businesses. Jasnani remarked that following a robust Q3, the input cost advantage of perhaps diminishing. He also said that companies have to garner volumes.

From another perspective, companies that depended on discretionary spending for business came up with lukewarm growth.

“Sectors like automobiles, building materials, healthcare, capital goods, travel, oil and gas, pharma, and telecom demonstrated commendable profit growth. The performance of quick service restaurants (QSRs), retail and durables was affected due to muted discretionary demand,” Amnish Aggarwal, research head, Prabhudas Lilladher told the newspaper.