India Inc earnings see sharp slowdown in FY23; non-BFSI profits contract

Better than expected showing by BFSI

Leaving out the better than expected showing by banks, financial services and insurance (BFSI) companies, there was a sharp deceleration in corporate earnings in FY23.

The combined net profit growth of a common sample of 907 key listed companies that are part of the BSE500, BSE Mid-Cap and BSE Small Cap indices was just 4.6 per cent year-on-year in FY23, a sharp deceleration from the 60.4 per cent in FY22 and 89.7 per cent in FY21.

These companies reported combined net profits of Rs 9.94 trillion in FY23, up from the Rs 9.5 trillion a year ago and Rs 5.93 trillion in FY21.

The slowdown in earnings was worse for non-BFSI companies. The combined net profits of 823 non-BFSI companies in the sample were down 8.9 per cent year-on-year (Y-o-Y) to Rs 6.43 trillion in FY23 from the Rs 7.06 trillion in FY22 and Rs 4.20 trillion in FY21.

This was largely owing to normalising corporate margins from their abnormally high levels in FY22 and FY21.

Earnings before interest, tax, depreciation and amortisation (EBITDA), or the operating margins, declined to 23 per cent of their income in FY23 from 25.5 per cent in FY22 and a record high of 26.5 per cent in FY21.

The EBITDA margins in FY23 were similar to the pre-Covid margins of 23.5 per cent, on average, between FY13 and FY19. (See the adjoining charts.)

Similarly, the EBITDA margins for non-BFSI companies declined to 15.1 per cent of revenues in FY23 from around 18.7 per cent in both FY22 and FY21. In comparison, these companies had reported EBITDA margins of 15.9 per cent, on average, from FY13 to FY19.
 

A decline in margins blunted the surge in corporate revenues in the last two years. The combined net sales (gross interest income in the case of lenders) of all companies in the sample were up 23.3 per cent Y-o-Y in FY23 to Rs 123.6 trillion, a slight moderation from the 25.1 per cent Y-o-Y growth reported by these companies in FY22.
 

In comparison, corporate revenues were flat in FY20 and FY21. 

The combined net sales of non-BFSI companies were up 24.3 per cent Y-o-Y in FY23, a slowdown from the chart-bursting 31.3 per cent in FY22. These companies reported combined net sales of Rs 103.1 trillion in FY23, as against Rs 83 trillion in FY22 and Rs 63.2 trillion in FY21.

The long-term data, however, suggests the slowdown in corporate earnings in FY23 is part of the process of normalisation of the India Inc growth trajectory after the volatility induced by the pandemic.

The sharp recovery in corporate earnings in FY21, FY22 and, in the case of BFSI companies, in FY23 helped them recover the ground they lost to the pandemic but did little to change the long-term growth trajectory. This is especially true for non-BFSI companies.

In the last 10 years (FY13 to FY23), the combined net profits (adjusted for exceptional gains and losses) of non-BFSI companies increased at a compound annual growth rate (CAGR) of 9.6 per cent. This is similar to the CAGR of 9.5 per cent in their combined net profits (adjusted for exceptional gains and losses) during the FY13-19 period.

In contrast, there has been acceleration, led by public-sector banks, in the earnings trajectory for BFSI companies in the post-pandemic period. The combined net profits of the companies in the BFSI space were up 43.5 per cent Y-o-Y to Rs 3.5 trillion in FY23 from the Rs 2.45 trillion a year ago. With this surge, the combined net profits of BFSI companies are up nearly six times from their pre-Covid levels.

BFSI companies in the sample had reported combined net profits of around Rs 61,500 in FY19.

The combined net profits of non-BFSI companies are up 54 per cent from Rs 4.18 trillion in FY19 to Rs 6.43 trillion in FY22, while those of all companies doubled from Rs 4.8 trillion in FY19 to Rs 9.94 trillion in FY23.

In the non-BFSI space, the automotive sector has seen the biggest surge in earnings. The combined net profits of automakers and auto ancillary makers were up 119.9 per cent Y-o-Y to around Rs 45,400 crore in FY23 from the Rs 20,652 crore a year ago and around Rs 8,100 crore in FY21.