India Inc's profits climb 41%, revenue up 6% in Q2
In the second quarter of the current fiscal year, India Inc saw a strong 41.4% growth in net profit, reaching an eight-quarter peak for a sample of 3,573 companies, as per the Economic Times (ET). This impressive growth was primarily fueled by exceptional results in the automobile, banking and finance, cement, and metal industries. However, a modest 6.2% revenue growth was observed, as consumer goods businesses encountered volume challenges and IT firms grappled with expansion.
Factors contributing to profit growth
The big increase in profit happened because the costs of fuels and commodities went down. Companies also formed better cost-reduction strategies that boosted profits despite the subdued revenue growth. Gautam Duggad from Motilal Oswal Financial Services told ET that it was a better quarter than they expected, mainly because banks, finance, and car companies did really well. When banks and finance companies were excluded from the sample, September quarter revenue growth fell to 1.9%, while net profit surged by 40.1%.
Improved operating margins
The overall sample's operating margin saw a YoY improvement of 360 bps, reaching 18.5%. Excluding banks and finance companies from the sample, operating margin climbed from 12.2% to 16.3% compared to last year, while net margin grew by 210 bps to 7.5%. HDFC Securities's Deepak Jasani told ET that better operating margins were due to lower commodity prices and cost-cutting. However, the profit after tax margin didn't rise as much because interest expenses and tax rates went up faster.
Future trends and earnings forecast
India Inc's future performance hinges on elements such as inflationary pressures, interest rate conditions, global geopolitical events, and government spending patterns leading up to the 2024 general elections. Jasani pointed out that early earnings results were promising, but later results showed consumption challenges due to a delayed festive season, high interest rates, rising inflation, slower wage growth, and rural issues. Motilal Oswal has raised its FY24 Nifty50 earnings per share (EPS) projection from Rs. 986 to Rs. 1,000.
