BFSI firms drive earnings of India Inc to a record high in Q4FY23

The earnings of India Inc hit a record high in the 2022-23 (FY23) January–March quarter (fourth quarter, or Q4), compared with their poor showing in the previous two quarters of the financial year.

The rise in earnings, however, is exclusively led by banking, financial services, and insurance (BFSI) companies.

A better-than-expected showing by banks and non-bank lenders in Q4FY23 more than compensated for the earnings contraction in the non-BFSI space.

The companies in the non-BFSI space continue to struggle with a contraction in profits and a steady slowdown in revenue growth.

The combined net profit of all 2,938 companies in Business Standard’s sample was up 10.5 per cent year-on-year (YoY) to a record high of Rs 2.97 trillion in Q4FY23, up from Rs 2.43 trillion in the third quarter (Q3) of FY23 and Rs 2.69 trillion a year ago.

By comparison, their combined net sales (gross interest income for BFSI companies) were up 14.3 per cent YoY to Rs 33.2 trillion in Q4FY23, from Rs 29 trillion a year ago.

The net sales growth, however, is the lowest in nine quarters, hinting at a demand slowdown in the broader economy and a price contraction in metals and energy.

The combined net profit of 2,452 listed companies, excluding BFSI and stock broking, contracted for the third consecutive quarter on a YoY basis, and was down 4.6 per cent YoY in Q4FY23.

These companies reported a combined net profit of Rs 1.97 trillion during the quarter, down from a record high of Rs 2.06 trillion a year ago.

In contrast, their net profit was up 22.3 per cent YoY in Q4 of 2021-22 (FY22), down 13.2 per cent YoY in Q3FY23 and down 23.7 per cent in the second quarter of FY23.

The net profit for non-BFSI companies was, however, up 30 per cent sequentially, or compared to the October–December quarter of FY23, thanks to improvements in the net profits of metals and mining, oil and gas, automotive, and fast-moving consumer goods companies. Besides, Q4 is a busy season for companies in sectors such as capital goods, construction, and infrastructure.

The YoY decline in earnings was largely due to a slowdown in revenue growth, faster growth in operating expenses, and higher interest expenses.

The combined net sales of non-BFSI companies in our sample were up 12 per cent YoY to Rs 27.52 trillion in Q4FY23.

By comparison, their net sales were up 17.6 per cent YoY in Q3FY23 and 24.6 per cent YoY in Q4FY22.

This is the lowest revenue growth for these companies since the October-December 2020-21 quarter.

The slowdown in top-line growth was visible in almost all sectors, including consumer goods and information technology services, but the slowdown was most pronounced in the metals and mining sectors.

The combined net sales for metals and mining companies in our sample were down 0.9 per cent YoY — their worst performance in 11 quarters.

Metals and mining is the second-largest industrial segment in terms of revenue in our sample, after oil and gas and ahead of the automotive sector.

Analysts attribute the slowdown in India Inc’s revenue growth to a slowdown in aggregate demand.

“Consumer demand in the domestic market and export demand have taken a hit from higher inflation and a global recession. Corporate revenues were also hit by the end of a post-Covid re-stocking cycle and pent-up demand visible in the previous quarters,” says Dhananjay Sinha, director and head-research, Systematix Institutional Equities.

The earnings of companies are also coming under pressure from higher finance costs.

The combined interest expenses of non-BFSI companies were up 22.6 per cent YoY in Q4FY23, against 1 per cent YoY growth in operating profit, or profit before interest, depreciation, and tax.

Analysts attribute this both to a rise in interest rates and additional borrowings by many manufacturing companies in 12 months.

By comparison, companies in the BFSI space continued to do well and reported another quarter of high double-digit growth in revenue and profits, driven by higher credit growth and a continued decline in provisions for bad loans.

The combined net profit of 486 companies in the BFSI space was up 60.2 per cent YoY to Rs 1 trillion in Q4FY23, from Rs 91,300 crore in Q3FY23 and Rs 62,700 crore in Q4FY22.

This was the best showing by these companies in four quarters.

Similarly, the gross interest income of BFSI companies was up 27 per cent YoY to Rs 5.67 trillion in Q4FY23, up from Rs 5.35 trillion in Q3 and Rs 4.46 trillion a year ago.

This was the fastest revenue growth reported by BFSI companies in at least 17 quarters.