Profits and wages growth slows down

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Financial statements of listed companies for the quarter that ended on 31 December  2023 have started trickling in. By 20 January 2024, results of 268 companies (out of a total of about 4,500) were available. These about 5.5 percent of the listed companies account for about 20 percent of the total sales and profits of all listed companies. They are the larger and therefore, the more significant listed companies. These early birds are also the ones that usually perform better than the ones that release their results towards the end of the mandatory 45-day disclosure window.

The 268 companies reported a 10.7 percent year-on-year (y-o-y) growth in their total income (net sales and other income) in December 2023. This is lower than the 13.1 percent y-o-y growth these 268 companies had reported in the September quarter or the 18.6 percent growth in the December 2022 quarter. It is also lower than the average 13.8 percent growth recorded by them in the past four quarters.

The trend seems to suggest a slight slowdown in top-line growth or at least no pick-up in sales growth during the December 2023 quarter. The full set of 4,500 listed companies had demonstrated a sharp slowdown in the y-o-y growth in total income to 3 to 4 percent during the June and September 2023 quarters. Results of the 268 companies suggest that this sluggish growth in sales of the full set of listed companies may have persisted in the December 2023 quarter.

India Inc. has stopped benefitting from falling raw material costs. Raw material expenses of these 268 companies grew by 3.6 percent y-o-y in the December 2023 quarter. This is significant break from the fall in this metric seen in the preceding two quarters.

But other major costs have been curtailed. Salaries and wages grew by a mere 7.4 percent compared to 12-24 percent y-o-y growth seen in the preceding four quarters. This is a rather sharp contraction in the growth rate. Similarly, the cost of power and fuel was down by 12.8 percent in the December 2023 quarter while the average increase in this over the past four quarters was over 20 percent for the same companies.

Net profit of these 268 companies grew by 12.7 percent. This is the lowest y-o-y growth in profits of these 268 companies in the past five quarters. So, early results of listed companies indicate a slight slowing of their topline and also their net profits in the December 2023 quarter.

Margins have slipped a bit too. Net profits as a percent of total income was 14.8 percent in the quarter ended December 2023. This was a tad lower than the 15 percent average in the preceding four quarters.

Of the 268 companies that have published their financial statements, 176 are the non-finance companies. These saw a much slower growth of 3.3 percent in their total income and also a slower 10.6 percent growth in their net profits. Finance companies on the other hand saw their total income grow by 24.5 percent and their net profits by 14.6 percent.

The 10.6 percent growth in net profit of non-finance companies in the December 2023 quarter is lower than growth pencilled in the September quarter, which was 18.6 percent. But these growth rates are a big turnaround from the fall in profits seen in these companies in the preceding three quarters. Net profits growth of non-finance companies is therefore improving. However, the superlative growth rates seen in net profits of finance companies is getting corrected. The average growth rate (y-o-y) in the past four quarters was about 67 percent. The growth in the December 2023 quarter was much lower at 14.6 percent.

Net profit margin of the 176 non-finance companies was lower at 12.4 percent compared to the 18.6 percent margin of the 89 finance companies. However, non-finance companies have seen a small improvement in margins while finance companies have seen a small drop.

These larger companies have a much higher profit margin than the rest of the companies. While these 268 companies have a net profit margin of nearly 15 percent, the full set of listed companies has an average net profit margin that is half of less than of this.

As the set of companies that reveal their financial performance increases, the growth rates and margins seen here will moderate. But there are two takeaways from these early results.

First, topline growth of India Inc, particularly non-finance companies, will be muted. The nominal growth reported so far was a mere 3.3 percent. This is a quarter with relatively benign inflation. The consumer price index grew y-o-y by 5.4 percent and the wholesale price index by 0.24 percent. Sharp changes in commodity prices are unlikely to influence the growth in sales much during this period. It may well be possible that the non-finance companies report no growth in sales in real terms in the December 2023 quarter.

Second, growth in wage expenses of the 268 companies in the December 2023 quarter was very low at a mere 7.4 percent. In non-finance companies this is even worse at a meagre 3.7 percent. This is largely a reflection of the very substantive shrinking of the wage bill in information technology companies. Tata Consultancy reported a meagre 4.2 percent increase in its wage bill, Infosys and Wipro reported a 0.6 percent fall each. HCL Technologies reported an increase of 1.4 percent in its wage bill. Besides, even FMCG giant, Hindustan Unilever reported a 4 percent fall in its wage bill in the December 2023 quarter.

This also seems to suggest that the over-Rs.3 trillion profits reaped by the listed companies in the past two quarters may not be repeated in the December 2023 quarter.

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