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Srividhya Sivakumar

The much-feared slowdown in corporate earnings now appears to be a reality. The September quarter numbers of over 2,000 companies highlight a lower rate of growth in India Inc’s revenues as well as profits. On an average, companies recorded a 23 per cent growth in earnings on the back of 12 per cent growth in revenues this quarter, compared with the corresponding quarter last year.

Notably, the same quarter last year saw India Inc notch up 47 per cent growth in profits and 32 per cent growth in revenues. Compared with the June quarter, however, the performance appears to have improved. On a sequential basis, profits grew by about 14 per cent, while revenues increased by 8 per cent.

The quarter, however, brings to the fore the role played by ‘other income’ in bolstering India Inc’s scorecard, suggesting a lower growth in earnings from operations. The ‘other income’, which grew by a whopping 42 per cent, was driven partially by forex gains and partly by improved returns on treasury. Besides, income from sale of land also played a significant part in aiding earnings. This may be worrisome. If not for the ‘other income’ component, profit growth would have been much lower.

However, there are positive aspects to the earnings card too. India Inc appears to have bettered its operating profit margins, with margins for the September quarter expanding by about 2.6 percentage points to 23.5 per cent. Net profit margins (11.3 per cent) also increased by a percentage point. This indicates that the subdued growth in earnings was not a function of margin pressures. Increased interest costs (43.2 per cent) and tax outgo (29.3 per cent) seem to have resulted in slower growth in profits. This suggests that going forward, the fortunes of India Inc could depend on how it manages its financing costs.

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