Bumper profits

by Mahesh Vyas

Listed companies seem set to garner record profits in the quarter ended September 2020. Apparently, the lockdown has not been too bad for the corporate sector. They seem to be making a killing. While the topline of listed companies has shrunk in both the lockdown-infested quarters, their profits have zoomed to record levels.

Topline of the listed companies declined by 27.3 per cent in the quarter ended June 2020 compared to the quarter ended June 2019. Partial data for the quarter ended September 2020 suggest a decline of 5.7 per cent in a similar comparison. Net profit, which had declined by 74.7 per cent in the June quarter, recorded a multi-fold increase in the September quarter, the growth was 263 per cent.

Financial statements for the quarter ended September 2020 of 1,897 companies were available in CMIE’s Prowess database as of November 11, 2020. These companies collectively generated Rs.1,332 billion of net profit during this period. This is the highest net profit generated by these listed companies during any quarter in the past. In fact, it is 25 per cent higher than the highest profit ever made by these companies in any past quarter. The highest profit made by these companies in the past was Rs.1,066 billion in the quarter ended June 2019. Evidently, what is being unfolded is an extraordinary rise in profits of these companies in the midst of a partial lockdown.

These companies had made only Rs.441 billion profit in the June 2020 quarter and Rs.320 billion in the March 2020 quarter. Their average quarterly profit in the past four quarters was Rs.502 billion.

During the first half of 2020-21, which covers the entire period of the lockdown of different intensities and associated uncertainties, these companies made net profits of Rs.1,774 billion. This is 23.8 per cent higher than the profits made in the first half of 2019-20.

There is a contribution of extraordinary transactions in the September 2020 quarter’s profits. Aggregate net profit, net of prior period and extraordinary transactions (PAT net of P&E) during the quarter ended September 2020 was lower, at Rs.1,257 billion. Even this was at a record high. It was also over 25 per cent higher than PAT net of P&E of any past quarter. The aggregate profit made by the 1,897 listed companies during the first two quarters of fiscal 2020-21 at Rs.1,986 billion was 9.2 per cent higher than the profits made during the first two quarters of 2019-20.

Interestingly, the fall in profits in the quarter ended June 2020, which was the quarter of the most stringent lockdown, was not very severe, at least for the 1,897 companies under study. Aggregate net profit of the 1,897 companies under consideration was Rs.441 billion and PAT net of P&E was Rs.729 billion. These were not the worst performance numbers of these companies. In the quarter ended March 2020, net profits were down to Rs.320 billion and net of P&E they were at Rs.427 billion. These were much worse than the performance in the June 2020 quarter. Further, the worst quarter was, in fact, January-March 2018, when profits were down to around Rs.250 billion. This is also true for all listed companies.

Evidently, the lockdown has hit the topline of listed companies but, it has not hit its profits. On the contrary, listed companies seem to have hit record profits during the lockdown.

The performance during the September 2020 quarter seems to have reversed a substantial slide in profits in the preceding quarters. This is evident from the four-quarter moving average series of net profits. The four-quarter moving average of net profits had hovered around Rs.729 billion per quarter till the end of 2018. In 2019, this increased to nearly Rs.926 billion per quarter. Then, it fell to Rs.659 billion in the quarter of March 2020 and further to Rs.502 billion in the quarter ended June 2020.

This drop in the four-quarter moving average till the June 2020 quarter indicates the falling trend in net profit in recent times. The extraordinary profits during the September 2020 quarter reversed this slide.

The sharp increase in profits during the September 2020 quarter is not concentrated in only a few large companies. It is quite widespread. In fact, a fairly large number of companies have hit their best profits performance during the September 2020 quarter. Of the 1,897 companies under study, a substantial 236 companies , i.e. 12.4 per cent of the total hit their best profits performance in 30 quarters, or in six years.

In normal times, most companies are expected to see an increase in profits quarter after quarter and, a good numbers are expected to post their best profit numbers compared to their record in the past. A secular increase in business over time ensures this. Of the 1,897 companies under study, 232 companies had recorded their best profit numbers in the September 2019 quarter till then. In the December 2019 quarter, only 160 of them hit their best profit numbers till then. Note that both these numbers are lower than the record of the September 2020 performance. It was not expected that past records would be broken in the midst of a pandemic-induced lockdown. The extraordinary increase in profits in September 2020 and its broad spread is therefore a surprise. Perhaps, it reflects the genius of enterprise to protect and even maximise its bottomline during extraordinarily adverse conditions.

References
1. https://economicoutlook.cmie.com/kommon/bin/sr.php?kall=wshreport&tabcode=001110005010005000&repnum=39360&frequency=Q&colno=1
CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
6.8 +2.1
Consumer Sentiments Index
Base September-December 2015
51.8 +0.3
Consumer Expectations Index
Base September-December 2015
53.6 0.0
Current Economic Conditions Index
Base September-December 2015
48.9 +0.9
Quarterly CapEx Aggregates
(Rs.trillion) Dec 19 Mar 20 Jun 20 Sep 20
New projects 5.56 4.02 0.78 0.82
Completed projects 1.67 1.78 0.25 0.69
Stalled projects 0.61 0.73 0.11 0.08
Revived projects 0.82 0.42 0.68 0.36
Implementation stalled projects 0.13 10.04 0.09 0.05
Updated on: 05 Dec 2020 3:28PM
Quarterly Financials of Listed Companies
(% change) Dec 19 Mar 20 Jun 20 Sep 20
All listed Companies
 Income -1.7 -5.0 -27.6 -6.2
 Expenses -2.2 -1.9 -27.9 -10.1
 Net profit -10.9 -48.2 -40.2 45.3
 PAT margin (%) 5.1 2.4 5.3 8.3
 Count of Cos. 4,459 4,316 4,300 4,204
Non-financial Companies
 Income -5.5 -9.0 -37.4 -10.3
 Expenses -6.4 -5.0 -37.6 -14.0
 Net profit -13.9 -49.4 -55.7 30.1
 PAT margin (%) 5.7 3.3 4.5 8.1
 Net fixed assets 13.3 6.0
 Current assets 3.0 0.7
 Current liabilities 5.8 -2.9
 Borrowings 15.6 8.1
 Reserves & surplus 1.4 4.5
 Count of Cos. 3,311 3,229 3,220 3,163
Numbers are net of P&E
Updated on: 05 Dec 2020 3:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.4 0.3
 Expenses 9.9 13.7 0.9
 Net profit -40.6 22.1 -19.9
 PAT margin (%) 2.0 2.3 4.1
 Assets 10.9 9.5 9.3
 Net worth 7.5 8.6 5.0
 RONW (%) 3.4 4.2 5.9
 Count of Cos. 28,469 27,687 7,454
Non-financial Companies
 Income 8.6 14.0 -2.8
 Expenses 8.8 14.1 -1.7
 Net profit -9.2 23.2 -28.6
 PAT margin (%) 2.7 3.1 4.3
 Net fixed assets 7.2 5.5 13.0
 Net worth 6.1 8.4 1.9
 RONW (%) 5.6 6.8 7.3
 Debt / Equity (times) 1.0 1.0 0.8
 Interest cover (times) 2.1 2.4 2.8
 Net working capital cycle (days) 77 70 58
 Count of Cos. 23,112 22,440 5,526
Numbers are net of P&E
Updated on: 05 Dec 2020 2:43PM