Profits scale a new peak

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rupees growth concept over time. 3d rendering

Listed companies made record profits again in the quarter ended September 2021. Net profits of 3,704 companies that published their financial statements for the quarter ended September 2021 crossed Rs.2.4 trillion. Nearly 1,000 companies are yet to publish their financial statements for the same quarter. These may not move the needle much on the aggregate profits made. But, profits are already heads-and-shoulders above any other quarter in the past.

Listed companies first broke records on profits a year ago in the quarter ended September 2020. This is when net profits crossed Rs.1.5 trillion. They maintained this profit level in the December 2020 quarter and then scaled up to Rs.2 trillion in the March 2021 quarter. Now, in the September 2021 quarter, just two-thirds of the approximately 4,400 listed companies that publish quarterly financial statements have seen net profits scale a new peak.

Profits growth in the September 2021 quarter was   driven by higher net profit margin. During the quarter, the net profit margin of the 3,704 companies was a  record 10.8 percent. Listed companies have never seen such profit margins in the past. The mean and median net profit margin in the past has been 6.6 percent. The over 10 percent margin is therefore          extraordinary. Although profits did break past records a year ago in September 2020, profit margins were still lower than the 10 percent mark. Profit margins have rarely crossed the 10 percent mark in the past. They were consistently above 10 percent during three quarters of 2007. They touched a max of 10.6 percent in the quarter of September 2007.

Both, financial services companies and non-finance companies have scaled new peaks of net profits. And, both have seen their profits grow on the back of higher profit margins.

Net profits of non-finance companies reached Rs.1.7 trillion in the quarter ended September 2021. Before the pandemic, net profits of these companies had never crossed Rs.1 trillion. So, profits are about 70 percent higher than peak pre-pandemic profits. Profits of these companies had started rising a year ago and had touched Rs.1.1 trillion in the quarter ended September 2020. Profits of the 2,732 companies that published their financial statements for the quarter of September 2021 recorded a 51.3 percent increase in net profits compared to a year ago. Growth in net profit net of prior period and extraordinary transactions is even more  impressive at 62.9 percent. This is on top of a 29.9   percent growth in this measure of profits seen in the year ago quarter.

Of the Rs.1.7 trillion of profits made by non-finance companies, manufacturing companies generated Rs.1 trillion. But, this was not the best performance by manufacturing companies. These companies’ peak performance was in the quarter of March 2021 when they amassed nearly Rs.1.2 trillion net profits. Profit  margin of manufacturing companies had peaked at 10.1 percent in the quarter ended March 2021. This fell to 8.9 percent in the June 2021 quarter and then to 8.4 percent in the September 2021 quarter.

In spite of the small fall in the margin between the June and September quarters, net profit did climb from Rs.0.94 trillion in the June 2021 quarter to Rs.1 trillion in the September quarter. This reflects a   substantial acceleration in the q-o-q growth in the    topline which helped increase absolute profits even at lower profit margin.

The other major component of non-finance companies is the non-financial services companies. The net profits of these companies spurted smartly in the quarter of September to Rs.0.3 trillion after having stagnated at just under Rs.0.2 trillion for four consecutive quarters from September 2020 through June 2021. Profits of these companies had recovered to nearly Rs.0.2 trillion in the quarter of September 2020. But, these have been sliding gradually since then. They fell from Rs.195 billion in the quarter of September 2020 to Rs.173  billion in the quarter of December 2020, then to Rs.168 billion in the quarter of March 2021 and to Rs.166   billion in the quarter of June 2021. In the latest quarter, ended September 2021, profits shot up to a record Rs.304 billion. This is the highest net profit generated in a quarter.

Net profit margin of the non-financial services sector shot up to 9 percent from an average of 5.4 percent in the preceding three quarters. But, this sector has bagged over 10 percent net profit margin in 2016. So, the sector has recovered its profit margin but hasn’t surpassed its past performance on margins.

Financial services companies have seen their profits zoom up steadily in the three quarters of 2021. Net profit of these companies was at Rs.330 billion in the quarter ended December 2020. It rose to Rs.401 billion in the quarter ended March 2021, then to Rs.510 billion in the quarter of June 2021 and then to Rs.670 billion in the quarter of September 2021.

This is a nearly doubling of the net profits in three  quarters. PAT margin was an impressive 12 percent in the September 2021 quarter. But, margins have been as high about ten years ago.

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