The combined net profit of “early bird” companies, those that have declared their quarterly results, rose for the third consecutive quarter in July-September 2023 (Q2FY24).
But the figures suggest a continued slowdown in revenue growth and stagnation in earnings over recent quarters.
This slowdown is severe for companies in the manufacturing and non-financial service sectors.
Banks and other financial companies managed to grow their gross interest income by double digits in the September quarter, but this growth was lower than in previous quarters.
The combined net profit of 213 early bird companies increased by 21.8 per cent year-on-year (Y-o-Y) to ~96,348.5 crore in the second quarter.
For comparison, these companies’ combined earnings rose by 23.6 per cent YoY in the April-June 2023 period (Q1FY24) and by 9.4 per cent YoY in Q2FY23.
Business Standard’s analysis includes the historical standalone quarterly numbers of Housing Development Finance Corporation (HDFC), which merged with HDFC Bank in July this year.
The combined net sales (or gross interest income for banks and non-banking financial companies) of early bird companies increased by 13.6 per cent Y-o-Y — the slowest growth rate in the past 11 quarters — to ~6.13 trillion in Q2FY24.
This was also the fifth consecutive quarter of declining revenue growth, indicating a persistent weakness in aggregate demand in the economy.
"The demand environment in the Indian economy is pretty weak right now, and companies across sectors are struggling to grow their sales volume and revenue," said Dhananjay Sinha, head-research and equity strategy at Systematix Institutional Equity.
“The slowdown is most pronounced in the consumer segment while construction-related segments are still growing thanks to higher government spending.
"But the impact of the latter is limited because the government’s capital spending accounts for only 8 per cent of the country's gross domestic product.”
Growth has been largely led by banks and non-banking lenders, such as Bajaj Finance.
Non-financial companies in sectors, such as IT services and FMCG, have struggled with low single-digit growth in net sales that hardly covered the underlying retail inflation in the economy in the second quarter.
The combined net profit of 168 early bird companies, excluding banking, financial services, insurance, and stock broking companies (BFSI), increased by 18.6 per cent Y-o-Y to ~50,200 crore in Q2FY24.
This is up slightly from around Rs 49,100 crore in Q1FY24 but down from the all-time high quarterly net profit of Rs 52,673 crore in the January-March 2023 period.
These companies’ combined earnings were up 13.7 per cent Y-o-Y in Q1FY24; the figure was down 11.3 per cent Y-o-Y in Q2FY23.
The combined net profit of non-BFSI companies in Q2FY24 is only Rs 462 crore or 0.93 per cent higher than their combined earnings six quarters ago in March 2022 or Q4FY22.
The early bird sample is dominated by BFSI and IT services companies, which account for 48 per cent and 29 per cent, respectively, of the combined net profit of the companies in the sample.
While BFSI companies continue to grow at double-digit rates, this quarter saw a sharp slowdown in revenue and profit growth in the IT sector.
The combined net sales of IT services companies in the sample is up just 6.7 per cent Y-o-Y in Q2FY24, the lowest in the past 11 quarters and less than a third of the growth a year ago.
Similarly, IT companies’ combined net profit was up 6.6 per cent Y-o-Y in Q2FY24, the lowest in the past five quarters.
On the brighter side, the manufacturers in the sample have reported continued gains from lower raw material and energy cost resulting in higher operating margins.
This helped them cushion the blow from a slowdown in volume growth, but analysts doubt if this can be sustained should consumer demand remain weak.
