The financial results of listed companies in India continued to reach new highs during the March quarter, maintaining the upward trend they have since the beginning of the pandemic. In the last quarter of fiscal 2022, the cumulative net profit of listed companies scaled a new peak of ₹2.66 lakh crore, which is 12.6% higher than the previous quarter and 24.06% higher than the corresponding quarter of the previous fiscal, a recent report says.
The Covid-19 pandemic and the subsequent lockdowns seems to have worked in favour of the listed companies in the country as they saw their average quarterly profit double since the outbreak. Indian companies have broken the slump in their financial results in the quarter ended September 2020 by posting record profits, and have been regularly breaking records since then.
“In the eight quarters from the one ended in June 2020, the quarterly profits of listed companies have been rising steadily. They averaged at ₹1.8 lakh crore between the quarters ended in June 2020 and March 2022. In the preceding eight quarters average quarterly profits were less than half this level, at ₹0.8 lakh crore and were on a declining gradient,” observes think tank Centre for Monitoring Indian Economy (CMIE) in an analysis.
Net profit margin in the quarter ended March 2022 was among the highest in a decade at 9.5%, the think tank notes. While margins had peaked at 10.1% in the quarter ended September 2021, net profit margins have been above 8.5% consistently for each of the last seven quarters.
Finance companies, essentially banks, claim much higher profit margins at around 15% compared to 8% of non-finance companies, which include industrial and non-finance services companies.
Of the ₹2.66 lakh crore cumulative net profit between 3,288 listed companies, the 2,402 non-finance companies account for profits of ₹1.85 lakh crore. “With the recent increase in interest rates, it is likely that banks will continue to report high profit margins in the near future. Non-finance companies contribute to a bulk of the total profits of the corporate sector and therefore to the peak profits,” CMIE notes.
Non-finance companies reported a 27.4% year-on-year increase in net sales in the March quarter of FY22, as per the CMIE report. The year-ago quarter was reasonably normal, thus the increase in sales is not vitiated by any base effect, it adds.
“But, it is impacted by a sharp increase in prices over the past one year. Commodity prices have shot up sharply during the January-March 2022 quarter. Inflation has been high in the earlier quarters as well. As a result, a large part of the y-o-y growth in March 2022 is because of inflated prices,” the analysis adds. “The inflation-adjusted y-o-y increase in net sales of non-finance companies in March 2022 was 5.3%.”
Even as the increase in commodity prices inflated sales, it also squeezed margins with the rise in input costs. Raw material costs shot up by 40.1% on-year, power and fuel costs shot even higher at 47%, and purchase of goods became 30% costlier. Meanwhile, growth in wage bill was relatively modest at 13.3% only. The total operational costs of non-finance companies grew 30.4% year-on-year during Q4 FY22.
Consequently, operating profit margin has come down from peak levels, but remains high compared to historical standards. The margin declined to 16.5% in the March 2022 quarter from 19.7% in the March 2021 quarter. This, however, is still higher than the long-term average of 15% prevalent before the Covid-19 outbreak.
Net profit margins have also exceeded the historical level of around 6% to around 7% during Covid times. “If we exclude the June 2020 quarter, the average Covid-times net profit margin has been even high at about 8.5%. The quarter ended March 2022 saw net profit margins close at 8.1%. This is much lower than the 9.5% net margin earned in March 2021,” CMIE says.
CMIE report is based on estimates of the financial statements published by 3,288 listed companies for the March 2022 quarter by May 30, 2022. The total sample size was around 4,700 companies, with the 3,288 listed companies accounting for 90 per cent of the total sales as per the previous quarter’s data.