Q3FY24 results: India Inc profit growth slowest in the last 14 quarters

Sample of early-bird companies shows worst net sales since Q3FY21

The early-bird results for the October-December 2023 quarter (Q3FY24) hint at a slowdown in corporate profit growth and a further deceleration in India Inc’s revenue growth.

The combined net profit of 215 early-bird companies that have declared their quarterly results so far is up 12.5 per cent year-on-year (Y-o-Y) in Q3FY24, growing at the slowest pace in the last 14 quarters.

These companies’ net sales (gross interest income for banks and non-banking finance companies) were up 9.4 per cent Y-o-Y in the third quarter, their worst show since the December 2020 quarter when net sales were down 3.5 per cent Y-o-Y. The numbers are adjusted for the merger of HDFC Bank and HDFC in July 2023.
 

The early-bird companies, excluding banks, finance, insurance, and stockbroking (non-BFSI), performed even more poorly, and their combined net profit was up 7.8 per cent Y-o-Y in Q3FY24, while their net sales were up just 4.5 per cent Y-o-Y during the quarter. This is the slowest revenue growth for non-BFSI companies since Q1FY23.

The early-bird companies in the Business Standard sample reported a combined net profit of Rs 1.02 trillion in Q3FY24, up from around Rs 91,000 crore a year ago and Rs 99,484 crore. The combined earnings of 157 companies, excluding BFSI firms, moved up to Rs 57,342 crore in Q3 from Rs 53,175 crore a year ago and Rs 55,175 crore in Q2FY23.

The combined net sales of early bird companies grew to Rs 7.55 trillion in Q3FY24 from Rs 6.9 trillion a year ago and Rs 7.46 trillion in Q2FY24.

For comparison, the combined net sales of non-BFSI companies inched up to Rs 5.19 trillion in Q3FY24 from Rs 4.96 trillion a year ago and Rs 5.2 trillion in Q2FY24.

Some of the top companies in their sectors that are part of the early bird sample include Reliance Industries, HDFC Bank, Tata Consultancy Services (TCS), Hindustan Unilever, Ultratech Cement, Infosys, ICICI Bank, Kotak Mahindra Bank, Avenue Supermarts, Asian Paints, and Hindustan Zinc. Most of these companies reported lower-than-expected growth in net sales and net profit in Q3FY24.

Sectorally, the early bird sample is dominated by private-sector banks and information technology (IT) services companies, followed by Reliance Industries, which has a major presence in crude oil refining & petrochemicals, telecom, and retail.

Banks account for nearly 40 per cent of the combined net profit of early bird companies in Q3FY24, and their combined net profit was up 16.9 per cent Y-o-Y in Q3FY24, down sharply from 25.2 per cent Y-o-Y growth in Q2FY24. The combined net profit of all BFSI companies was up 18.9 per cent Y-o-Y in Q3FY24, but the growth was slower than the 26.1 per cent Y-o-Y increase in Q2FY24.

Banks and finance companies have been the biggest driver of corporate earnings for nearly three years now, and the slowdown in their earnings growth is weighing on overall corporate earnings.

In comparison, the net profit of IT services companies, such as TCS, Infosys, Wipro, and HCL Technologies, that account for 27 per cent of the combined net profit of all early bird companies was up 3.4 per cent Y-o-Y to Rs 27,627 crore in Q3FY24, growing at the slowest pace in the last six quarters.

The numbers suggest that corporate earnings would have been even lower if not for gains from Y-o-Y decline in raw material and energy costs that allowed companies to expand margins despite a slowdown in revenue growth. The earnings before interest, taxes, depreciation, and amortisation (Ebitda) or operating margins for all early bird companies were up 270 basis points (bps) Y-o-Y to a 13-quarter high of 34.2 per cent of revenues in Q3FY24, up from 31.5 per cent of revenues a year ago. One basis point is one-hundredth of a per cent.

The Ebitda margins for early bird companies, excluding BFSI firms, were up 115 bps Y-o-Y to 21.1 per cent of net sales in Q3FY24 from 19.9 per cent a year ago. This is the highest operating margins for these companies since the December 2021 quarter (Q3FY22).

Savings on raw materials and energy costs allowed companies, such as Reliance Industries, Ultratech Cement, and Asian Paints, to report faster growth in earnings compared to their net sales growth.

Some of the savings in raw material and energy costs were, however, offset by higher interest expenses. The combined interest expenses for non-BFSI companies were up 20 per cent Y-o-Y in Q3FY24, compared to 10.8 per cent Y-o-Y growth in their Ebitda or operating profit during the quarter.