Early-bird net profit growth slowest in 7 qtrs

The early-bird results for the April-June quarter of 2024 (Q1FY25) hint at a slowdown in corporate revenues and profits in FY25.

Corporate profits might face headwinds from a continued revenue growth slowdown and a reversal in margin gains from lower commodity and energy prices in FY24.

The combined net profit (adjusted for exceptional gains and losses) of the 210 companies that have declared their Q1FY25 results so far is down 4.2 per cent from the year-ago period – their worst showing in seven quarters.

These companies’ combined net profit was up 45.1 per cent year-on-year (Y-o-Y) in Q1FY24, and 4.4 per cent in Q4FY24, the lowest quarterly profits in
six quarters.

The early-bird companies reported a combined net profit of Rs 88,723 crore in the June 2024 quarter, down 9.3 per cent from Rs 97,768 crore in the March quarter.

The non-financial companies in the early-bird sample were worse off: The combined net profit of 160 companies excluding banks, financial service and insurance (BFSI) was down 10.2 per cent Y-o-Y at Rs 57,599 crore in Q1FY25, compared with Rs 64,109 crore in Q1FY24 and Rs 66,583 crore in Q4FY24.

By comparison, the combined net profit of 158 companies excluding BFSI and oil & gas was up 5.6 per cent Y-o-Y at Rs 39,516 crore in Q1FY25, growing at the slowest pace in the last six quarters.

The oil & gas companies’ numbers include that of Reliance Industries, which reported 5.5 per cent Y-o-Y decline in adjusted net profit in Q1FY25.

The quarterly numbers also suggest a further slowdown in revenue growth for BFSI, while IT services companies like Tata Consultancy Services, Infosys and Wipro reported an uptick in topline growth from FY24 lows.

The early-bird companies’ combined net sales (gross interest income in case of lenders) was up 8.2 per cent Y-o-Y in Q1FY25, an improvement from 6.4 per cent Y-o-Y growth in Q1FY24, but a deceleration from 8.6 per cent Y-o-Y growth in Q4FY24.

The combined gross interest income of the 50 BFSI companies in our sample was up 14.8 per cent Y-o-Y at Rs 1.69 trillion in Q1FY25, growing at the slowest pace in eight quarters.

For comparison, these companies’ combined gross interest income was up 18.1 per cent Y-o-Y in Q4FY24 and 31.9 per cent Y-o-Y in Q1FY24.

In contrast, the combined net sales of the 19 IT services companies in the sample was up 4.3 per cent Y-o-Y at Rs 1.71 trillion in Q1FY24, growing at the fastest pace in three quarters and an uptick from the 2.8 per cent Y-o-Y in Q4FY24.

The combined net sales of non-BFSI companies in the early-bird sample was up 6.6 per cent Y-o-Y in Q1FY25, up from 6.5 per cent Y-o-Y growth in Q4FY24 and 1.9 per cent Y-o-Y growth in Q1FY24.

The combined net sales of early-bird companies ex-BFSI and oil & gas was up 5.7 per cent Y-o-Y in Q1FY25, growing at the slowest pace in 14 quarters.

For comparison, the combined net sales of these companies were up 6.3 per cent Y-o-Y in Q4FY24 and 10.9 per cent Y-o-Y in Q1FY24.

Analysts say the early-bird results have been on expected lines, but these might lead to earnings downgrades for FY25.

“The Street expects 16 per cent Y-o-Y growth in corporate earnings in FY25 over FY24.

"The early-bird results, however, hint an earnings contraction.

"This will trigger a downward revision in FY25 earnings, which will make the equity valuation even more expensive,” says Dhananjay Sinha, co-head research and equity strategy, Systematix Institutional Equity.

The decline in overall earnings has largely come from a decline in margins.

The operating or Ebitda (earnings before interest, tax, depreciation and amortisation) margins for the entire sample were down 70 basis points Y-o-Y at 27.6 per cent of revenues in Q1FY25, compared with 28.3 per cent in Q1FY24 and a record high of 29.7 per cent in Q2FY24.

Similarly, the Ebitda margins for non-BFSI companies were down 200 basis points at 17.3 per cent of revenues in Q1FY25, compared with 19.3 per cent a year ago.

This was due to a rise in raw-material cost.

Raw material costs accounted for 49.8 per cent of the net sales for non-BFSI companies, against 47.1 per cent a year ago, and the highest in six quarters.

IT services companies, however, reported a sequential improvement in margins, thanks to a tight leash on salary and wages, their biggest cost head.