India Inc’s margin boost cushions slower revenue growth in Q1

Households may be feeling the pinch of higher inflation but corporate India is enjoying record high margins and profits.

The combined quarterly net profit of listed companies scaled a new high in the April-June 2023 quarter owing to a sharp rise in operating and net profit.

The expansion in margins more than compensated for the slowdown in revenue growth, which slipped into single digits in Q1FY24 after a gap of nine quarters.

The combined quarterly net profit of 2,937 listed companies in the Business Standard sample reached a record high of Rs 3.36 trillion during April-June 2023 (Q1FY24), up 47.2 per cent from the Rs 2.28 trillion a year ago and Rs 3.27 trillion during the January-March 2023 quarter (Q4FY23).

In comparison, net sales (gross interest income in the case of banks and non-banking financial companies) of the listed companies in our sample were up just 5.3 per cent year-on-year (Y-o-Y) to Rs 33.82 trillion in Q1FY24, growing at the slowest pace since January-March 2021.

The slowdown in revenue growth was felt across sectors with the exception of banks and non-bank lenders and automotive companies.

However, the expansion in operating margins more than made up for slower revenue growth, boosting overall profits.

The rise in margins was driven by lower prices of commodities and energy during the quarter.

The Ebitda (earnings before interest, tax, depreciation and amortisation) margin for listed companies in our sample was up 500 basis points Y-o-Y to 25.9 per cent of revenues in Q1FY24, up from 20.9 per cent a year ago.

The margins were also up 230 basis points on a quarter-on-quarter basis from 23.6 per cent in Q4FY23.

One basis point is one-hundredth of 1 per cent.

The Ebitda margin in Q1FY24 was the highest in at least the last 21 quarters with the exception of Q1FY21 and Q1FY22, when companies had reported a higher margin due to a sharp decline in commodity and energy prices in the aftermath of the pandemic.

Similarly, firms reported a sharp rise in their pre-tax profit margins (PBTM) and post-tax net profit margins (PATM) in the quarter. While the PBTM was up 290 basis points to 12.8 per cent of revenues in Q1FY24, the PATM expanded by 250 basis points to 9.3 per cent of revenues.

Both the ratios are the best in at least the last 21 quarters.

Overall gains to the manufacturers were, however, small compared to banks and oil-marketing companies (OMCs).

The Ebitda margin for manufacturers (firms other banks, financial services and insurance; OMCs; and information technology) was up only 75 basis points on a Y-o-Y basis in Q1FY24 while their net profit margin was up by 71 basis points Y-o-Y in the quarter.

In contrast, the banks’ gross margins were up 500 basis points Y-o-Y while their net profit margins were up 250 basis points Y-o-Y in Q1FY24.

The OMCs were the biggest gainers during the quarter and their Ebitda margins nearly quadrupled to 14.2 per cent of revenues in Q1FY24 from 3.6 per cent a year ago and 9 per cent in Q4FY23.

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