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Sales revenue rising, profits are (still) not: What India Inc. Q2 results show

Although the economy is slowly coming out of the travails of the Covid-19 pandemic, the corporate sector’s performance is far from satisfactory if the financial results for the second quarter (Q2) ended September 2022 are any indication. While the top line (sales revenue) showed a growth, bottom line (profitability) remained under pressure.

What do the Q2 financial results indicate?

The financial performance of an aggregate sample of 1,917 companies shows that net sales continue to increase despite witnessing slight moderation, says a Bank of Baroda (BoB) research report. However, higher expenditure costs have implied gross profits have slowed, while net profits have declined.

Interest costs are inching up but their impact has not yet been felt. Amongst key sectors, iron & steel, construction materials and hospitality have seen significant decline in profits, the report says.

Why has sales revenue gone up?

According to the BoB report, quarterly financial performance shows that net sales rose by 24% in the September quarter against 27.4% in Q2FY22. In absolute terms, net sales were up at Rs 25.6 lakh crore in Q2FY23 as against Rs 20.6 lakh crore in the same period of last year as consumer spending increased and demand in the overall economy showed a spike.

And why have profits taken a beating?

Profitability, on the other hand, has weakened on account of expenditure increasing at a faster rate than sales. This has resulted in 2.4% increase in gross profits compared with 9.4% increase in Q2FY22.

However, both profit after tax (PAT) and profit before tax (PBT) have registered negative growth, with PAT declining by 5.4% and PBT by 1.3% in Q2FY23, compared with a 58.7% and 51.3% increase respectively in the same period of last year.

Raw material prices, especially commodity prices, rose in the wake of the global spike in inflation amid the Russian invasion of Ukraine and the rise in interest rates. The rising input costs have impacted industries such as industrial gases and fuels, aviation, hospitality, logistics, education & training and trading, the report said.

How has the sector-wise performance been?

In terms of PAT, out of 38 sectors analysed by BoB, 13 reported above 30% growth in PAT in Q2FY23. These included sectors like realty, paper, agri, trading, consumer durables, alcohol, diamond & jewellery, infrastructure, retailing, healthcare and capital goods.

Sectors such as automobiles, non-ferrous metals, and chemicals recorded PAT growth between 20-29%.

However, nearly 14 sectors reported negative growth in profits, within which sharpest decline was seen in hospitality, iron & steel, construction materials, plastics, crude oil, textile, media & entertainment, industrial gases, and fuels and plastics, BoB said.

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