Operational efficiencies lead to bumper profits

by Mahesh Vyas

The number of companies for which interim financial statements are available for the quarter ended September has increased since we last reported of a sharp increase in the profits of companies in the quarter ended September 2020. This analysis is based on a sample of 4,076 listed companies. This number is likely to increase very marginally any further. In the preceding two quarters, quarterly financial statements were available for about 4,300 companies. In the two preceding these, the number was closer to 4,500.

The four-thousand-plus companies tell us the same story on profits that a smaller sample of 1,897 companies told us about ten days ago, that Indian corporates made record profits in the quarter ended September 2020. The 1,897 companies we spoke of earlier made a net profit after tax (PAT) of Rs.1,332 billion, which was the largest profit made by those companies. Now, the 4,076 companies we discuss here made a PAT of Rs.1,545 billion. This is the highest profit made by all listed companies in any quarter. It is 30.9 per cent higher than the earlier best record of Rs.1,181 billion in the March 2014 quarter, which was the effort of 4,854 listed companies. The 4,076 companies saw their profits zoom up by 171 per cent from the Rs.570 billion profits they made in the September 2019 quarter.

Companies have made these extraordinary profits in the midst of a partial lockdown and a fall in sales compared to a year ago.

Nearly half the profits made by listed companies in the September 2020 quarter came from manufacturing companies. Collectively, the 1,675 listed manufacturing companies in the sample made Rs.726 billion of net profits. They account for 47 per cent of the total PAT of the 4,076 companies. These are the highest profits generated by the listed manufacturing companies. And, they are 16.7 per cent higher than the record of Rs.622 billion of PAT in the quarter of June 2018. They are also 15.2 per cent higher than they were a year ago.

Manufacturing companies made a killing in operating profits. While their net sales shrunk by Rs.961 billion, operating expenses fell by Rs.1,331 billion. Most of the fall in operating expenses was because of lower spends on raw materials and finished goods. These fell by Rs.1,195 billion. Lower other income, lower net extraordinary income, higher provisioning and higher taxes contained the growth in profits obtained from operations. Yet, they made record profits.

Manufacturing companies’ savings on raw materials had an impact on the profits of mining companies. Their net sales contracted by Rs.86 billion. But, mining companies saved on costs too. As a result, their profits fell by a smaller, Rs.38 billion. Electricity companies saw a negligible fall in net sales and a 5 per cent fall in raw material expenses but, their other expenses increased sharply to offset the gains. Their PAT grew by 0.5 per cent.

It’s been a stressful quarter for construction companies. The topline declined by Rs.103 billion and operating expenses declined by Rs.80 billion. Interest expenses increased marginally but these companies reported a big increase in extraordinary expenses. As a result, the 208 listed construction companies in the sample saw an aggregate loss of Rs.25 billion in the quarter ended September 2020. In the September 2019 quarter, these companies had made a profit of Rs.42 billion. Thus, the net change in PAT this year is a negative 67 billion rupees from continuing operations. This was more than offset by a profit of Rs.85 billion from discontinued operations. As a result, construction companies delivered a small Rs.15 billion increase in profits during the September 2020 quarter compared to the profits made in September 2019 although this comes entirely from discontinued operations.

Services (non-finance) companies saw a huge increase in PAT. But, much of this is from a base effect of extraordinary expenses incurred by telecom companies in the September 2019 quarter. An October 2019 ruling by the Supreme Court led to telecom companies making provisions for Adjusted Gross Revenue (AGR). This led to a sharp increase in extraordinary expenses of telecom companies. If we exclude the gain from this base effect, services companies have seen a much smaller increase in profits. Of the Rs.681 billion increase in PAT, Rs.600 billion is because of the base effect.

Non-finance service companies saw a Rs.244 billion shrinking of net sales. This was well covered by curtailing expenses on raw materials and finished goods by Rs.183 billion and other expenses by Rs.134 billion. Therefore, PAT increased even without taking into account the base effect, albeit marginally.

Banks have had a comfortable quarter. Income from operations grew by 10.7 per cent and, other income by 10 per cent. Their major expense head interest expenses grew marginally by 1.8 per cent. Other expenses grew by 9.6 per cent. The only expense head that grew handsomely was wages. This grew by 22.7 per cent. Provisioning requirements declined by 3.2 per cent. Extraordinary income declined, but so did extraordinary expenses. Banks therefore, seem to have been a big beneficiary of sustained business and sharp fall in interest expenses.

The aggregated financial statements of all financial services companies put together which includes NBFCs and other financial services companies reflect the results of the banks since banks dominate this sector.

It is evident from the above that the extraordinary increase in profits in the September 2020 originate in the operational efficiencies of the manufacturing and banking sectors. Both have seen a sharper fall in their operating costs compared to the fall in their topline. Contributions of the non-financial services and the construction sectors are unrelated to operations. But, their contribution is not very large.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.9 -3.6
Consumer Sentiments Index
Base September-December 2015
53.2 0.0
Consumer Expectations Index
Base September-December 2015
54.8 0.0
Current Economic Conditions Index
Base September-December 2015
50.7 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Mar 20 Jun 20 Sep 20 Dec 20
New projects 3.80 0.83 1.05 0.86
Completed projects 1.76 0.25 0.72 0.49
Stalled projects 0.73 0.11 0.08 0.30
Revived projects 0.42 0.68 0.36 0.08
Implementation stalled projects 10.18 0.09 0.07 0.12
Updated on: 16 Jan 2021 8:28PM
Quarterly Financials of Listed Companies
(% change) Mar 20 Jun 20 Sep 20 Dec 20
All listed Companies
 Income -5.0 -27.6 -6.2 6.7
 Expenses -1.9 -27.9 -10.1 2.7
 Net profit -48.9 -40.2 45.2 26.9
 PAT margin (%) 2.3 5.3 8.3 21.4
 Count of Cos. 4,355 4,347 4,310 64
Non-financial Companies
 Income -9.0 -37.4 -10.4 7.0
 Expenses -4.9 -37.6 -14.0 2.9
 Net profit -50.1 -55.8 29.9 26.9
 PAT margin (%) 3.2 4.5 8.1 21.7
 Net fixed assets 13.3 5.9
 Current assets 3.6 0.8
 Current liabilities 6.2 -2.8
 Borrowings 15.9 8.1
 Reserves & surplus 1.3 4.5
 Count of Cos. 3,239 3,235 3,213 44
Numbers are net of P&E
Updated on: 16 Jan 2021 8:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.5 0.2
 Expenses 9.9 13.8 0.5
 Net profit -41.0 17.9 -11.9
 PAT margin (%) 2.0 2.2 3.9
 Assets 10.9 9.5 9.2
 Net worth 7.4 8.6 4.8
 RONW (%) 3.4 4.0 5.7
 Count of Cos. 29,264 28,548 9,649
Non-financial Companies
 Income 8.6 14.1 -2.6
 Expenses 8.8 14.3 -1.8
 Net profit -9.5 22.0 -23.7
 PAT margin (%) 2.7 3.0 4.1
 Net fixed assets 7.2 5.4 13.0
 Net worth 6.1 8.3 2.1
 RONW (%) 5.6 6.7 7.2
 Debt / Equity (times) 1.0 1.0 0.8
 Interest cover (times) 2.1 2.3 2.6
 Net working capital cycle (days) 77 70 60
 Count of Cos. 23,680 23,061 7,171
Numbers are net of P&E
Updated on: 14 Jan 2021 10:28AM