Listed companies' record profits encore

by Mahesh Vyas

The business environment continues to remain sluggish in India. Financial statements of listed companies for the quarter ended December 2020 show that total income barely grew in nominal terms. A redeeming feature is that it did not decline, like it did in the preceding five consecutive quarters.

Total income of the corporate sector grew by a measly 0.37 per cent in the quarter of December 2020 compared to its level in the quarter of December 2019. Like in the preceding two quarters, it is the financial sector companies principally banks and broking companies that lead the growth.

Total income of financial services companies grew by 4.8 per cent and that of banking services grew by 7.3 per cent. NBFCs, in particular housing finance companies saw their topline shrink. Securities broking, AMCs and other fee-based financial services continued to see good growth.

Business of the real economy the non-financial companies continues to face a shrinking market. Total income of non-finance companies shrunk by 1.03 per cent in the quarter ended December 2020. This was the sixth consecutive quarter of a year-on-year shrinking of the topline of non-finance companies. Only half of these six are Covid-infected.

Manufacturing companies have borne the greatest brunt of this shrinking market. However, their lot saw the pace of shrinking markets recede. In the December 2020 quarter, manufacturing companies recorded the smallest y-o-y fall in total income. It fell by 0.4 per cent while mining and utilities shrank 16 per cent and 5.7 per cent, respectively, and non-financial services companies saw their total income decline by 1.6 per cent.

A shrinking business environment implies low demand for labour. While Indian listed companies do not provide data on employment in their quarterly financial statements, we can draw inferences on employment from expenses on salaries and wages, which is available. These grew by 7.9 per cent in the December 2020 quarter compared to their level a year ago. Inflation in the same quarter was 6.4 per cent. This implies that employment may have grown by about 1.5 per cent.

Much of this growth in employment could have been in the financial services sectors. Salaries and wages of these companies grew by a robust 22.2 per cent with the banking sector recording a growth of 26.6 per cent. But, the non-finance companies saw the wage bill grow by only 3.4 per cent. Given 6.4 per cent inflation, this implies a shrinking of labour or real wages. Salaries and wages shrank in nominal terms y-o-y for two consecutive quarters in June and September 2020. In the December 2020 quarter, there is a decline again, in real terms. Employment in the real economy has therefore shrunk during the lockdown.

Business for and employment by the larger companies continues to languish in 2020-21, the year of the Covid-induced lockdown. But, profits have been soaring. Listed companies garnered record profits in the quarter ended September 2020. Their net profits were in excess of Rs.1.5 trillion in the quarter. This was way higher than the previous record of Rs.1.18 trillion in the quarter ended March 2014.

In the December 2020 quarter, the net profit of listed companies exceeded, albeit by a whisker, the record profits of September 2020. In the September 2020 quarter, listed companies made Rs.1,527 billion of net profits after tax. In the December 2020 quarter, they made Rs.1,533 billion.

The profits made in December 2020 are bereft of accounting entries which are not real profits of the quarter itself. If we exclude prior period and extraordinary transactions, the profits of December 2020 are even more impressive. Profits after tax net of prior period and extraordinary transactions in the December 2020 quarter was an even higher Rs.1,620 billion. And this is much higher than the PAT net of P&E in the September 2020 quarter, which was a mere Rs.1,422 billion although even that was a record.

This record profits of listed companies show up in their value added. Gross value added of non-financial companies grew by a handsome 19.1 per cent in the quarter ended December 2020, notwithstanding the fact this is half the growth recorded in the September 2020 quarter. The September 2020 quarter had benefited among other factors also from the low base of September 2019 when the gross value added had declined y-o-y by 23.6 per cent. The base effect in December was smaller as gross value added had declined by a much smaller 5.2 per cent.

Inflation-adjusted gross value added of the non-financial sector grew by 12.1 per cent, y-o-y, in the December 2020 quarter. Most of this real growth is in the manufacturing sector, which recorded an impressive growth of 22.7 per cent. This will show up in the form of the sector performing very well in the quarterly GDP estimates released by the National Statistical Office later in February 2021.

Growth in gross value added in the electricity sector was 7.2 per cent and that in the services sector companies was 8.7 per cent. The services sector growth is concentrated in the telecom sector which seems to have an extraordinary base year effect essentially because of unusually high losses in the year-ago quarter. The mining and construction industries recorded a fall in real gross value added in the December 2020 quarter compared to the performance in the December 2019 quarter.

Financial statements of listed companies for the December 2020 quarter therefore tell us that while business continues to remain sluggish and as a result employment has either stagnated or declined, companies continue to make record profits. These profits will help India stabilise its GDP growth estimates for the December 2020 quarter.

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
7.0 +1.4
Consumer Sentiments Index
Base September-December 2015
55.3 0.0
Consumer Expectations Index
Base September-December 2015
57.4 0.0
Current Economic Conditions Index
Base September-December 2015
52.0 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Mar 20 Jun 20 Sep 20 Dec 20
New projects 3.82 0.86 1.15 0.91
Completed projects 1.73 0.26 0.72 0.68
Stalled projects 0.73 0.11 0.08 0.30
Revived projects 0.42 0.68 0.36 0.11
Implementation stalled projects 10.22 0.09 0.07 0.12
Updated on: 25 Feb 2021 8:28PM
Quarterly Financials of Listed Companies
(% change) Mar 20 Jun 20 Sep 20 Dec 20
All listed Companies
 Income -5.0 -27.6 -6.3 1.5
 Expenses -1.8 -27.9 -10.3 -0.1
 Net profit -51.1 -40.3 47.2 58.4
 PAT margin (%) 2.2 5.3 8.4 8.6
 Count of Cos. 4,374 4,370 4,365 4,299
Non-financial Companies
 Income -9.0 -37.4 -10.5 0.0
 Expenses -4.8 -37.7 -14.2 -1.0
 Net profit -52.2 -56.0 31.5 55.2
 PAT margin (%) 3.1 4.5 8.1 9.0
 Net fixed assets 13.5 5.8
 Current assets 2.5 0.7
 Current liabilities 5.4 -2.8
 Borrowings 15.8 8.1
 Reserves & surplus 1.7 4.4
 Count of Cos. 3,256 3,252 3,250 3,205
Numbers are net of P&E
Updated on: 25 Feb 2021 8:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.5 -0.2
 Expenses 9.9 13.8 0.1
 Net profit -41.4 16.6 -12.8
 PAT margin (%) 1.9 2.2 3.6
 Assets 10.9 9.6 9.2
 Net worth 7.3 8.4 4.6
 RONW (%) 3.3 3.9 5.3
 Count of Cos. 30,112 29,570 11,060
Non-financial Companies
 Income 8.6 14.1 -3.0
 Expenses 8.8 14.3 -2.4
 Net profit -9.8 21.1 -22.6
 PAT margin (%) 2.7 3.0 3.7
 Net fixed assets 7.2 5.5 11.8
 Net worth 6.0 8.0 1.6
 RONW (%) 5.6 6.5 6.5
 Debt / Equity (times) 1.0 1.0 0.9
 Interest cover (times) 2.1 2.3 2.5
 Net working capital cycle (days) 78 71 59
 Count of Cos. 24,243 23,774 8,018
Numbers are net of P&E
Updated on: 19 Feb 2021 9:59PM