Corporate profits up nearly threefold since pandemic: RBI's bulletin

RBI research finds corporate profits nearly tripled in four years, aided by pent-up demand, manufacturing resilience, and deleveraged balance sheets

Corporate profits climbed to ₹ 7.1 trillion in financial year 2024-25 (FY25) from ₹ 2.5 trillion in FY21 as post pandemic pent-up demand drove growth in sales, according to a research paper in Reserve Bank of India’s (RBI’s) bulletin.

 

Consequently, net profit margins improved and reached to double digit level in FY25, driven by the manufacturing sector.

 

According to the report, the weak domestic economic activity underpinned by sluggish private consumption during 2019-20 and the pandemic over blew the situation causing a significant contraction in sales and profitability. However, the corporate sector rebounded strongly thereafter, supported by fiscal and monetary policies, pandemic led pent up demand, and effective cost management.

 

 

While net profit margin of IT sector moderated during the post-pandemic period due to slowdown in activities coupled with higher salary outgo, net profit margin of non-IT service sector remained in the negative zone since Covid before returning into positive territory in FY24.

 

On the other hand, operating profit margin exhibited relatively lower volatility at aggregate level, though operating profit margin of non-IT sector remained volatile -- from 19.2 per cent in FY17 to the low of 11.7 per cent in FY19 and bounced back to a high of 22.4 per cent in FY24.

 

It was broadly resilient for large firms consistently outperforming medium and small enterprises.

 

Sales growth of the companies peaked at 32.5 per cent in FY22 before normalising at 7.2 per cent in FY25, reflecting a transition from a rapid recovery phase to stable growth. The manufacturing sector maintained stable profit margins, while non-IT services, after initial volatility, rebounded strongly. IT sector growth remained steady throughout.

 

“Large companies emerged as the primary contributors to overall profitability, consistently achieving higher operating profit margins compared to medium and small size firms. Despite the pandemic induced decline in sales, firms managed to improve their operating profit margins through effective cost-cutting measures and operational efficiency enhancements during the crisis,” the report observed.

 

Also, the corporate sector continued to deleverage their balance sheet helping them to take up fresh investment. The medium and small firms enhanced their debt servicing capacity, which aided their overall financial stability.

 

According to the report, “Deleveraging of balance sheet by corporates and improved profitability helped better debt serviceability across the size categories. When examining debt serviceability across firm size, medium and small-sized companies demonstrated higher debt serviceability compared to their larger counterparts. However, it was the large companies that significantly drove the debt serviceability metrics of listed private non-financial corporates.”

 

With a robust financial foundation and adaptive strategies, the sector remains well-placed to capitalise on future opportunities and contribute to sustained economic expansion.