Non-finance companies have had a tough time in the quarter ended June 2024. They have found it difficult to expand their sales and have seen their operating and net profit margins come under pressure. These findings are based on the financial statements of 436 companies for which the financial statements were available consistently for the five quarters ended June 2023 through June 2024. These account for about 13 percent of all listed non-finance companies and about 35 percent of their total income.
Total income of these 436 companies in the June 2024 quarter was 7.1 percent higher than the level in the year-ago quarter. This is only modestly above the 5 percent inflation in the quarter and only a shade better than the 6.3 percent growth recorded in the preceding, March 2024 quarter. Non-finance companies have been having a tough time expanding their business. Their total income had shrunk year-on-year (y-o-y) about 2 percent in the June 2023 quarter. Since then, growth has very slowly clambered back. The 436 companies saw the y-o-y growth in total income come up from -2.3 percent in the June 2023 quarter to 0.9 percent in September 2023 quarter and then 3.8 percent and 6.3 percent in the following two quarters.
The 7.1 percent y-o-y growth in total income in the June 2024 quarter is unimpressive also because it comes over a low base when the income had shrunk by 2.3 percent.
Net profit margins of all listed non-finance companies have been quite elevated in recent times. In fiscal 2023-24, at 8.1 percent, they were at a 14-year high. However, after reaching a recent peak of 8.4 percent in the June 2023 quarter, they have slid down a bit.
The 436 companies under study have enjoyed higher margins than the full set of listed non-finance companies. But their margins have also been sliding. They fell from 10.7 percent in the June 2023 quarter to 10.6 percent in the September 2023 quarter, then 10 percent in the December 2023 quarter and March 2024 quarter. In the June 2024 quarter, their net margins fell further and more sharply to 9.5 percent. Compared to the year ago quarter, net profit margin of these 436 non-finance companies were down by 1.3 percentage points.
Margins fell in the June 2024 quarter because input costs shot up. Raw materials and purchase of finished goods have registered much higher growth than the sales growth. While net sales grew by 6.7 percent, raw material costs went up by 11.7 percent and purchase of finished goods was up by 14.4 percent. Their combined share in net sales increased from 49.3 percent in the June 2023 quarter to 51.7 percent in June 2024 quarter. Overall operating expenses as a percent of net sales increased from 81.4 percent to 83.9 percent.
As a result, operating profit margin fell from 18.8 percent to 16.8 percent in the year over the June 2024 quarter. This two-percentage point fall is much sharper than the 1.3 percent points fall in the net profit margin.
In spite of the high interest rate regime of the Reserve Bank of India, interest costs of non-finance companies have been in control. In the June 2024 quarter they were a mere 1.4 percent higher than in the year-ago quarter. Interest expenses as percent of net sales declined from 2.3 percent in the June 2023 quarter to 2.2 percent in the June 2024 quarter.
Profit before tax shrunk by 5.9 percent, y-o-y. Consequently, tax provisions have declined sharply. The 436 companies collectively reported a steep 6.7 percent fall in total tax provisions in the June 2024 quarter compared to the June 2023 quarter.
Profit after tax fell by 5.6 percent. Sluggish growth in sales and rising cost of inputs led to this fall. These 436 companies had seen a minimal 0.5 percent increase in their net profits in the March 2024 quarter. The fall in the June 2024 quarter is steep.
