Corporate India’s Net Profits Shrink By 3.1% In Q1FY25: Report

Owing to an unfavourable base effect, the net profit of corporate India shrunk by more than 3 per cent on a year-on-year (YoY) basis in the first quarter of the current financial year (Q1FY25). As per the report by Bank of Baroda, the profit after tax (Pat) of 2,539 companies decreased from 1.97 lakh crore in Q1FY24 to Rs 1.90 lakh crore in Q1FY25. Last year, the YoY growth in net profits was 31.3 per cent in Q1FY24. Out of the 33 sectors, 18 registered sales growth higher than the aggregate average of 7.7 per cent.

In the recently concluded quarter, 2,539 companies, excluding Banking, Financial Services and Insurance (BFSI) segment companies, reported total net sales of Rs 22.9 lakh crore, an increase of 5.2 per cent from Rs 21.73 lakh crore in Q1FY24. The total expenditure also increased by 6.4 per cent YoY to take the total to Rs 19.64 lakh crore in Q1FY25 from Rs 18.45 lakh crore in Q1FY24. The operating profit grew marginally by 0.6 per cent to Rs 3.93 lakh crore in the quarter.

The BoB report raised concerns about the growth in sales as even though it grew by 5.2 per cent YoY in the quarter, it remains in single digits. During the quarter, the sales of sectors like iron, steel and cement were hit by the general elections and heatwaves in the country.

The interest costs for the companies remained steady in the quarter, but a sharp decline in profitability led to a marginal decline in the interest coverage ratio (ICR) for the ex. BFSI segment. The ICR declined to 5.76 per cent in Q1FY25 from 5.97 per cent in Q1FY24. ICR indicates if the company is making enough profits to meet its interest liabilities.

Out of the total of 33 sectors, 17 registered a moderation in their ICR in Q1FY25 on a YoY basis. Among the top ten most heavily indebted sectors, which include crude oil, telecom and healthcare, six of them marked an improvement in ICR. However, despite the improvement, the telecom sector’s ICR lies below 1 per cent.

18 sectors reported higher sales growth than the aggregate level of 7.7 per cent, attributed to the base effect as the sales growth declined in Q1FY24. As far as the net profit is concerned, 20 sectors registered higher growth than the average of 3.5 per cent.

“Going ahead, an unfavourable base and an increase in input costs will weigh on corporate profitability. However, support will come from pickup in demand due to the festive season, moderation in inflation and pickup in rural demand,” Aditi Gupta, Bank of Baroda Economist mentioned in the report.

The report has excluded the BFSI segment companies by stating that the banks and financial institutions have benefitted from an uptick in their business upcycle and have hence registered robust performance on all financial metrics.