India Inc’s profits surge despite flat revenue growth

With economic growth decelerating sharply in the current fiscal year owing to the collapse in consumption and marked slowdown in investments, the performance of India Inc has been lacklustre.

Based on the results declared so far, by 2,816 companies, India Inc continued to face subdued demand in the December quarter, with companies reporting flat revenue growth on account of weak volumes.

But thanks to the sharp corporate tax rate cut last September, companies have reported strong growth in profits in the December quarter. Profit after tax (PAT) for the 2,816 companies grew 44 per cent in the December 2019 quarter. Aside from the corporate tax cut, a low base in the corresponding quarter last year also boosted profit growth.

Banks, particularly the state-owned ones, had reported huge losses in the December 2018 quarter. For instance, IDBI Bank, Bank of India and Bank of Maharashtra, cumulatively reported losses of over ₹12,569 crore in the December 2018 quarter. Hence in the December 2019 quarter, their aggregate profit jumped manifold, against the low base last year.

Similarly, Tata Motors, which reported a loss of ₹26,993 crore in the December 2018 quarter due to an asset impairment in its JLR arm, posted a profit of ₹1,738 crore in the December 2019 quarter. However, as other players in the automobile space continue to reel under pressure, profits for automobile companies (excluding Tata Motors) reported a 20 per cent decline in the latest quarter.

Cost savings

Aside from the low base, benign input prices also gave a fillip to the profits of many companies. Of the 2,816 companies, about 1,350 manufacturing-based companies saw operating margins get a slight uptick to 14 per cent in the December 2019 quarter from 13 per cent in September 2019. This was due to an 11 per cent drop in raw material costs.

Besides, with the recent moderation in oil prices, power and fuel costs also declined by 12 per cent, which boosted the profits of many companies that are dependent on crude-based inputs. For instance, market leaders Asian Paints and UltraTech cement saw a 20 per cent and 89 per cent spike, respectively, in profits in the December 2019 quarter, despite weak sales.

The impact of rising borrowing costs — which had weighed on India Inc’s earnings for several quarters — also appears to be waning. In the December 2019 quarter, manufacturing based companies saw a rise of 11 per cent in their interest costs, compared to the 31 per cent spike in the March 2019 quarter.

Mixed bag

While the drop in oil prices aided a few companies, it impacted the performance of crude oil companies. In the December quarter, Indian oil companies reported a 13 per cent drop in sales and 65 per cent decline in PAT.

In the consumption space, FMCG companies increased their advertising spends. While this boosted their revenues (by 11 per cent) with a volume uptick, it dented their profits (3 per cent decline).

While most sectors, including the automobile, infrastructure and allied Sectors were affected by the economic slowdown, the aviation industry was an outlier. With healthy growth in passenger traffic in the December quarter, airline companies reported a 25 per cent spike in top-line numbers. A drop in fuel costs more than doubled their profits from the year-ago period.

Better than Q2

The same set of 2,816 companies had seen a 43 per cent drop in reported PAT in the September quarter. This drop came despite an 18 per cent reduction in tax outgo (aggregate).

While revenue growth was flat in the September quarter as well, the AGR dues of telecom companies had dented aggregate profits. Bharti Airtel and Vodafone Idea had reported aggregate losses of around ₹74,000 crore in the September quarter, on the back of higher provisioning.

Telecom players continued to report losses in the December 2019 quarter. But the losses moderated significantly to about ₹6,300 crore.

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