Hat-trick of superlative profits

by Mahesh Vyas

Listed companies made extraordinary profits in the quarter ended March 2021. This would be the third consecutive quarter of superlative profits. Profits sank in the March and June 2020 quarters but have bounced back with a vengeance. In the quarter ended September 2020, 4,406 listed companies reported a net profit of Rs.1.52 trillion. This was 30 per cent higher than the highest profit earned anytime in the past. This wasn’t a one-time bonanza. In the quarter ended December 2020, the profits scaled up further to Rs.1.53 trillion. In the March 2021 quarter, just 935 companies booked a profit of Rs.1.58 trillion.

This number is expected to go up as nearly three-fourths of the listed companies are yet to declare their financial performance during the March 2021 quarter. These companies collectively made profits of about Rs.250 billion in the September and the December 2020 quarter each. Assuming similar orders of magnitude to continue total profits by listed companies could touch Rs.1.8 trillion in the March 2021 quarter.

Profits have been growing on increased profitability of listed companies. In a year-on-year comparison, listed companies grew their topline by 14.7 per cent in the March 2021 quarter. But, net profits expanded by 212.4 per cent. This is because profit margin over total income has soared from 0.2 per cent in the March 2020 quarter to 10.8 per cent in the March 2021 quarter. Margins were particularly bad in the March 2020 quarter but they have also never been in double-digits before. So, the superlative growth in profits in March 2021 reflects both, a particularly bad base period and an exceptionally good current period.

Gains in profitability and profits emanated essentially from a return to topline growth and curtailment of costs. But, there are some interesting differences in the source of growth and profits during the last three quarters.

First, there is shift in the source topline growth and of profits in favour of non-finance companies, which is the real economy that produces goods and services.

In the September and December 2020 quarters, topline growth was concentrated entirely in financial services companies while non-finance companies were shrinking. A revival in non-finance companies was important to ensure the sustainability of growth. The March 2021 results proclaim this revival eloquently.

In the March 2020 quarter, growth in finance companies moderated while non-finance companies bounced back with robust growth. After a fall of 11 and 1 per cent in the September and December 2020 quarters, respectively, topline growth of non-finance companies in the March 2020 quarter was a healthy 18.6 per cent.

In the March 2021 quarter, financial services companies saw a 2.1 per cent increase in the topline and a 2.1 per cent fall in total expenses as a result, net profits expanded by 65 per cent. In the same quarter, non-finance companies saw topline expand by 18.6 per cent and total expenses grow by a much lower 8.9 per cent. As a result, net profits grew by 295 per cent. The share of non-finance companies in total profits of the corporate sector increased from 73 per cent in the quarter ended September 2020 to 78 per cent in the quarter ended March 2021.

Second, companies have controlled expenses in spite of a significant increase in raw material costs. In the March 2021 quarter, non-finance companies saw their topline grow well. But, this growth was accompanied by increase in raw material costs. However, a tight control on other costs delivered high profits during the quarter.

Manufacturing companies recorded a 22.9 per cent increase in net sales during the quarter ended March 2021. Growth in raw material expenses was close at 18.6 per cent. But, these companies kept other expenses in much greater control. Wages grew by 10.3 per cent and other expenses shrunk by 1.8 per cent. Overall operating costs of manufacturing companies grew by 11.9 per cent although raw material expenses grew by 18.6 per cent. Further, interest costs declined by 20.2 per cent. The much lower growth in or shrinking of costs of manufacturing companies helped them see a 610 per cent increase in profits.

Non-financial services companies saw their net sales grow by 13.1 per cent and raw material expenses increase by a close 12.6 per cent. Purchase of finished goods increased by 27.1 per cent. Yet, their total operating expenses increased by only 5.5 per cent. This is because wages grew by only 5.7 per cent and other expenses shrunk by 1.6 per cent. And, interest costs were down by 10.5 per cent. As a result, net profit of non-financial services companies increased by a handsome 74 per cent in the quarter ended March 2021.

Total profits of the 1,750 listed manufacturing companies grew from Rs.721 billion in the quarter ended September 2020 to Rs.854 billion in the quarter ended December 2020. In the March 2021 quarter, just 483 manufacturing companies delivered Rs.928 billion of net profit. Total profits of the 1,250 non-financial services companies fell from Rs.198 billion in the quarter of September 2020 to Rs.175 billion in the December 2020 quarter. In the March 2021 quarter, just 218 companies generated Rs.295 billion of profits.

As results of the remaining listed companies become available in the coming few weeks, we expect to see a new high in the profits generated by listed companies. And, profits are expected to be concentrated in the manufacturing and non-financial services companies.

CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.0 +0.3
Consumer Sentiments Index
Base September-December 2015
60.3 0.0
Consumer Expectations Index
Base September-December 2015
62.1 +0.5
Current Economic Conditions Index
Base September-December 2015
57.5 -0.8
Quarterly CapEx Aggregates
(Rs.trillion) Dec 20 Mar 21 Jun 21 Sep 21
New projects 1.50 2.22 2.63 2.05
Completed projects 0.87 1.17 0.72 1.06
Stalled projects 0.30 0.26 0.32 0.03
Revived projects 0.15 0.22 0.12 0.25
Implementation stalled projects 0.20 0.32 0.25 0.22
Updated on: 27 Nov 2021 9:28AM
Quarterly Financials of Listed Companies
(% change) Dec 20 Mar 21 Jun 21 Sep 21
All listed Companies
 Income 1.6 15.1 39.3 27.8
 Expenses 0.1 7.4 38.9 27.2
 Net profit 58.1 330.6 134.8 52.9
 PAT margin (%) 8.4 8.8 9.0 9.7
 Count of Cos. 4,456 4,376 4,460 4,463
Non-financial Companies
 Income 0.2 17.8 56.4 35.8
 Expenses -0.7 10.6 57.4 36.3
 Net profit 52.1 223.4 200.8 59.5
 PAT margin (%) 8.8 9.0 8.5 8.9
 Net fixed assets 2.3 13.9
 Current assets 4.3 17.3
 Current liabilities 0.8 7.1
 Borrowings -4.3 21.1
 Reserves & surplus 11.7 18.6
 Count of Cos. 3,281 3,239 3,290 3,265
Numbers are net of P&E
Updated on: 27 Nov 2021 9:28AM
Annual Financials of All Companies
(% change) FY19 FY20 FY21
All Companies
 Income 13.3 0.3 -2.2
 Expenses 13.6 0.3 -4.5
 Net profit 15.1 -11.1 46.8
 PAT margin (%) 2.1 2.1 6.8
 Assets 9.8 8.6 12.5
 Net worth 8.5 4.6 13.5
 RONW (%) 3.7 3.5 8.8
 Count of Cos. 32,262 31,180 7,893
Non-financial Companies
 Income 14.0 -1.5 -4.5
 Expenses 14.2 -1.2 -6.3
 Net profit 21.6 -20.7 36.0
 PAT margin (%) 2.9 2.4 6.4
 Net fixed assets 5.6 10.4 1.9
 Net worth 7.9 2.3 11.3
 RONW (%) 6.4 5.0 9.9
 Debt / Equity (times) 1.0 1.1 0.7
 Interest cover (times) 2.3 1.9 3.5
 Net working capital cycle (days) 74 81 66
 Count of Cos. 25,777 24,849 5,777
Numbers are net of P&E
Updated on: 19 Nov 2021 9:14PM