Indian companies are generating more cash than ever.
The net cash flow from listed firms’ operations hit a new high of Rs 11.1 trillion in financial year 2023-24 (FY24), crossing the Rs 10-trillion mark for the first time, according to the Centre for Monitoring Indian Economy (CMIE) data going back to 1990-91.
The FY24 figure represents a 19.3 per cent jump over the previous year, even as quite a few companies are yet to release their numbers.
FY23 had seen a mere 2.1 per cent rise in net cash flow.
Cash flow measures the value of cash which moves in and out of the company during the course of its activities.
Improved operating cashflow is considered a more reliable performance metric because cashflows are not affected by assumptions such as depreciation and amortisation which may distort final reported earnings.
The FY24 data takes into account 1,791 listed companies and excludes financial sector firms.
On the other hand, the FY23 data was for 3,680 companies.
Cash flow details are part of companies’ annual reports, which are typically available by the middle of the next financial year.
Lower raw material prices and resultant higher margins had a role to play in increased cash flows for FY24, Pankaj Pandey, head of research at ICICIDirect, told Business Standard.
“From a Nifty perspective, margins were at a healthy high of close to 19 per cent in FY24,” he added.
The increase in operating cash flows is the outcome of higher profitability and improvement in working capital management.
This has coincided with sluggish capital expenditure (capex) even amid rising depreciation of assets capitalised in the recent past, Deepak Jasani, head of retail research at HDFC Securities, said. “Capex has been sluggish across the board in the listed private space,” he said.
Cyclicals had done well in FY24 as had certain sectors including refineries, but the recent trend is a mixed one, according to Jasani.
Oil & gas and automobile sectors among non-financials played a key role in the corporate profit to gross domestic product (GDP) ratio reaching a 15-year high of 5.2 per cent, according to a June 2024 India Strategy report from Motilal Oswal Financial Services authored by research analysts Gautam Duggad and Deven Mistry.
Pandey said oil companies did well on two counts.
The oil marketing segment was making money before the price cuts preceding the national elections.
Refineries also did well, as gross refining margins — the difference between the price of the oil sold and the original crude petroleum raw material used to produce it — remained in double digits.
“Managements have become very aware of the need to be efficient in cash flow management,” said Jasani, adding that increased formalisation of the economy is likely to be a tailwind for improved cash flows.
The net profit before tax and extraordinary income rose 27.4 per cent to Rs 9.9 trillion in FY24 for the companies in the sample.
It had fallen 6.5 per cent in the previous year.
The rise in profitability and cash flows may be concentrated in a few sectors.
For example, in the case of refineries, the rise in profit before tax was Rs 1.1 trillion, more than twice the previous year.
Other key industries that saw a surge in profit before tax included cement (46.1 per cent), drugs and pharmaceuticals (41.5 per cent), and information technology (9.1 per cent).
There was a decline in profit before tax for mining companies (-3 per cent) as well as companies in the metal and metal products industry (-8.8 per cent).
Some of the increased cash generation seems to have gone towards reducing debt.
Cash outflows towards the repayment of long-term liabilities in FY24 totalled Rs 3 trillion for the 1,791 companies, higher than the full-year data for FY23 and FY22, when outflows were about Rs 2.8 trillion each.
The data for the previous two years included over 3,500 companies.
A similar story played out for cash outflow towards redemption or buyback of capital.
This came in at Rs 0.34 trillion for FY24.
While lower than FY21 and FY22, it was higher than the FY23 figure of 0.26 trillion spent for the same purpose – suggesting that at least some of the cash from higher earnings is being used to reward shareholders.
Earnings growth for the current financial year is expected to be in double digits, according to Tanvi Kanchan, head of UAE business and strategy at Anand Rathi Shares and Stock Brokers.
“We do expect that earnings will be...12-14 per cent,” she said.
