India Inc Q3 Profit Growth Remains on Double-Digit Path
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Corporate India clocked double-digit growth in aggregate net profit for the third quarter helped by stable input costs and lower interest outgo in case of manufacturing companies while revenue growth remained below 10% for the third straight quarter.

For the sample of 3,381 companies, revenue grew 8.2% Y-o-Y in the quarter compared with a 17.3% rise in the year-ago period. Net profit rose 25% on a lower base of 2.2% growth a year ago. It was the third straight quarter of double-digit growth in profit.


“The corporate earnings have been fairly above our expectations,” said Gautam Duggad, institutional research head, Motilal Oswal Financial Services.

 

“This was led by domestic cyclicals such as automobiles and financials along with global cyclicals, including metals and oil and gas,” he said. HDFC Securities retail research head Deepak Jasani drew attention to the rising disparity among companies across sectors. “Companies delivering higher growth in the past disappointed while a lot of companies reported improved growth for the first time in recent months,” he said.

The operating margin improved by a marginal 10 basis points (bps) to 17.3% year-on-year in the December quarter. Hundred basis points equals one percentage point. On a sequential basis, the margin shrank by 160 bps, the second consecutive quarter of sequential contraction. This reflects the gradual waning of the benefit of benign input costs amid single-digit revenue growth.
 

“After a strong Q3, India Inc’s input cost advantage is starting to diminish,” Jasani said. “While topline growth is improving, corporates need to speed up on volumes to benefit out of operating leverage.”
 

Excluding banks and finance companies, revenue growth slowed to 4.4%, reflecting the subdued performance of non-lending companies, whereas net profit growth improved to 35.3% due to lower interest outgo. Interest as a percentage of profit before interest and tax (PBIT) fell to 22.3% from 25.1% in the year-ago quarter. For the total sample, including lending companies, the ratio swelled to 48.8% from 44.9%, reflecting the rising cost of deposits, which also affected interest margins.
 

The effect of higher deposit costs was also visible in aggregate operating margins. The operating margin for the truncated sample (excluding lenders) expanded by 190 bps year-on-year to 15%. It was a wider expansion than the 10 bps improvement in the full sample’s margin. On a sequential basis, the trend was similar in the case of the truncated sample – a contraction of 150 bps.

On the sectoral front, it was a mixed bag as companies dependent on discretionary spending reported sluggish numbers.

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

While the overall outlook for corporate India is promising, short-term volatility cannot be ruled out, given general elections are coming up.

 

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