Moderated but robust profits

by Mahesh Vyas

Financial statements for the quarter ended September 2022 from the first 500-odd companies indicate that listed companies continue to do quite well. There is no slowing down of the top-line growth and so inflation does not seem to be a spoiler. Margins seem to be somewhat intact although it is possible that these will descend from their current levels as more companies release their statements. It can be assumed that some companies that did not fare well delayed the release of their financial results.

We expect aggregate profits to step down a bit from the stratospheric levels they had reached in recent quarters. Net profit of listed companies had peaked at Rs.2.61 trillion in the quarter ended March 2022. This was more than twice the peak quarterly aggregate profit of listed companies before the Covid-19 pandemic. Profits have been rising since the quarter of September 2020 when it had crossed the pre-Covid peak.

Net profit declined substantially to Rs.2.14 trillion in the quarter of June 2022. We expect it to fall further in the September 2022 quarter. Yet, profits would still be much higher than the peak pre-Covid levels. The 549 companies for which data was available till October 29 generated net profit of Rs.1.21 trillion. These companies account for about 47.2 per cent of the sales of all companies that released their financial statements in the previous quarter. About 4,500 companies release their financial statements every quarter. Over 85 per cent of these are expected to release their results in the next about 15 days.

The Rs.1.21 trillion net profit of these 549 companies was 6.7 per cent higher than a year ago. Extrapolating from this growth rate and using the base of Rs.2.47 trillion profits generated in the quarter ended September 2021, the net profit in the quarter ended September 2022 would turn out to a record Rs.2.63 trillion. But, this is unlikely to turn out to be true. We expect profits to moderate.

Profit growth in the September 2022 quarter has been concentrated in the financial services companies principally the banks which have seen a nearly 61 per cent growth in net profit. While this includes the results of the private sector banks, those of the large public sector banks such as State Bank of India, Punjab National Bank and Bank of Baroda are still awaited. The first two of these had reported a y-o-y fall in their profits in the quarter ended June 2022.

The greater challenge to profits growth in the September 2022 quarter is the performance of the non-finance companies. The 399 non-finance companies for which data was available show a 12.9 per cent fall in net profits. Of these, 221 are manufacturing companies and they have collectively seen their profits shrink by a substantial 24.2 per cent. Non-financial services companies reported a slender growth of 4.5 per cent in their net profit.

The fall in profits of non-finance companies seen thus far is the result of most large manufacturing industries reporting a shrinking. Textiles, chemicals, construction materials and metals have reported sharp falls. On the other hand, food products, consumer goods, machinery and transport equipment reported growth in profits.

What stands out from the results seen so far is the continued growth in sales. Total income of the 549 companies grew y-o-y by almost 30 per cent on top of the 28 per cent growth pencilled in the year-ago quarter. Non-finance companies recorded a 35 per cent increase in sales on top of the 36 per cent growth recorded in the year ago quarter. This is impressive.

Moderation of commodity prices slowed down the growth in sales of some industries. This is reflected in the robust but the somewhat depressed growth in net sales of metals and mining and to a smaller extent, chemicals. However, consumer goods industries such as food, cosmetics and toiletries and transport equipment continue to report reasonably respectable growth in sales and profits.

High inflation has not dented the growth in sales of consumer goods companies. Sales of food products companies grew by 21 per cent y-o-y on top of the 14 per cent recorded a year ago. Y-o-Y sales growth has been in double-digits in all quarters since March 2021. Sales of cosmetics and toiletries companies grew by 14 per cent and automobiles clocked a growth of over 35 per cent. Sales growth of domestic appliances, however, was muted according to the partial data available.

Net profit margins of non-finance companies seem to be holding up better than expectations. Partial data show a net profit margin of 7.6 per cent in the quarter ended September 2022. This is better than in the pre-Covid times although it is lower than the margins seen between September 2020 and March 2022 when the margins ranged in the 8-9.5 per cent band. It is possible that the margin may inch down as more data comes in. We expect margins to stabilise around 7 per cent. This would be a shade higher than the pre-Covid level. But, robust top-line growth will keep profits elevated.

The overall profits of listed companies are thus expected to remain substantially elevated compared to pre-Covid times but may dip a bit compared to the recent superlative profit levels. Profits would be high essentially because banks are expected to deliver super profits and because non-finance companies see continued robust top-line growth even as margins moderate.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
8.3 +0.7
Consumer Sentiments Index
Base September-December 2015
81.9 -0.2
Consumer Expectations Index
Base September-December 2015
81.6 0.0
Current Economic Conditions Index
Base September-December 2015
82.3 -0.6
Quarterly CapEx Aggregates
(Rs.trillion) Dec 21 Mar 22 Jun 22 Sep 22
New projects 4.04 8.60 4.88 3.53
Completed projects 2.86 1.32 1.18 1.33
Stalled projects 0.08 0.43 0.53 0.06
Revived projects 1.98 0.33 0.29 0.09
Implementation stalled projects 0.66 0.09 0.29 0.26
Updated on: 08 Dec 2022 8:28PM
Quarterly Financials of Listed Companies
(% change) Dec 21 Mar 22 Jun 22 Sep 22
All listed Companies
 Income 23.4 20.8 40.1 25.1
 Expenses 21.3 19.8 41.4 27.1
 Net profit 35.4 31.3 21.1 -3.0
 PAT margin (%) 9.0 8.8 7.2 7.7
 Count of Cos. 4,756 4,671 4,683 4,494
Non-financial Companies
 Income 29.3 24.8 50.1 27.8
 Expenses 28.8 25.7 52.9 31.5
 Net profit 19.2 9.8 8.3 -22.6
 PAT margin (%) 7.5 7.6 5.7 5.5
 Net fixed assets 2.0 3.9
 Current assets 15.0 19.3
 Current liabilities 11.7 10.8
 Borrowings 3.6 11.8
 Reserves & surplus 11.3 7.6
 Count of Cos. 3,439 3,387 3,414 3,330
Numbers are net of P&E
Updated on: 08 Dec 2022 8:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -0.9 25.8
 Expenses 0.4 -3.2 24.7
 Net profit -3.8 75.0 61.6
 PAT margin (%) 2.0 4.3 7.9
 Assets 9.0 9.9 9.9
 Net worth 4.7 12.0 14.2
 RONW (%) 3.4 6.8 11.8
 Count of Cos. 33,421 32,202 9,171
Non-financial Companies
 Income -1.1 -1.9 31.7
 Expenses -0.9 -3.9 31.5
 Net profit -20.4 62.2 60.2
 PAT margin (%) 2.2 3.9 6.9
 Net fixed assets 11.3 2.2 2.3
 Net worth 2.1 10.5 14.8
 RONW (%) 4.6 7.5 13.3
 Debt / Equity (times) 1.2 1.0 0.7
 Interest cover (times) 1.9 2.4 4.3
 Net working capital cycle (days) 82 88 55
 Count of Cos. 26,380 25,257 6,870
Numbers are net of P&E
Updated on: 05 Dec 2022 10:11AM