Net sales growth weakest in a year, too; BFSI sector emerges an outlier
India Inc continued to grapple with muted revenue growth in the September 2024 quarter (Q2FY25) and witnessed a decline in margins and profits.
The headwinds were especially severe for non-financial companies, while banking, financial services, and insurance (BFSI) firms significantly outpaced the rest of the corporate sector.
The total profit of 1,353 listed companies that have released their Q2FY25 results thus far dropped by 0.6 per cent year-on-year (Y-o-Y) — the first cumulative earnings decline in eight quarters.
For comparison, these firms posted a robust 47.4 per cent Y-o-Y increase in net profit in Q2FY24 and a smaller but positive 1.6 per cent Y-o-Y rise in Q1FY25.
The overall corporate profit of companies in Business Standard’s sample slipped to approximately Rs 2.88 trillion in Q2FY25 from Rs 2.90 trillion in Q2FY24 and Rs 3.02 trillion in the first quarter of FY25.
Corporate net sales for the July-September period rose by 6.5 per cent Y-o-Y to Rs 30 trillion in Q2FY25 from Rs 28.2 trillion in Q2FY24, albeit this represents the slowest growth pace in the last four quarters.
For non-BFSI firms, the combined net profit declined for the second consecutive quarter on a Y-o-Y basis in Q2FY25, while net sales have been growing at a low single-digit rate for the past six quarters.
Non-BFSI companies posted a combined net profit (adjusted for exceptional gains & losses) of Rs 1.67 trillion in Q2FY25, down from Rs 1.88 trillion in Q2FY24 — thus marking an 11 per cent Y-o-Y decline, their weakest showing in the last seven quarters.
Net earnings in Q1FY25 were Rs 1.87 trillion in Q1FY25.
For comparison, non-BFSI companies achieved 61.3 per cent Y-o-Y profit growth in Q2FY24, though profits had already started slipping by Q1FY25, with a 4.5 per cent Y-o-Y decrease.
Revenue growth for non-BFSI companies also slowed, with combined net sales rising by just 4.1 per cent Y-o-Y in Q2FY25 -- the slowest pace in four quarters.
In Q2FY24, net sales for these firms grew by 1.5 per cent Y-o-Y but then accelerated to 6 per cent Y-o-Y in Q1FY25.
The combined profit for these non-financial companies reached Rs 22.64 trillion (about $270 billion) in Q2FY25, up from Rs 21.74 trillion in Q2FY24 and down slightly from Rs 22.97 trillion in Q1FY25.
Earnings within the non-BFSI segment were pressured by a combination of slower revenue growth and a decline in margins from the peaks reached in FY24.
The operating profit margins or PBIDT (profit before interest, depreciation and tax) margin (as a percentage of total revenues) for non-BFSI companies fell by 127 basis points Y-o-Y, to 17.1 per cent in Q2FY25 from 18.3 per cent in Q2FY24.
This decline in margins was largely driven by faster increases in raw materials and employee expenses compared to net sales growth.
Raw material costs for non-BFSI companies rose by 7.6 per cent Y-o-Y in Q2FY25, and employee expenses grew by 7 per cent Y-o-Y, offsetting the impact of lower fuel and energy costs compared to the previous year.
BFSI companies, in contrast, continued to push corporate earnings, despite some challenges, such as a slowdown in loan growth and rising delinquency in the retail lending space.
The 259 BFSI companies within the sample registered an 18.6 per cent Y-o-Y increase in combined net profit for Q2FY25, while their combined net sales (or gross interest income) rose by 14.4 per cent Y-o-Y in the same period.
Although gross interest income growth has slowed to its lowest level in nine quarters, sector earnings remain strong.
The BFSI sector reported an all-time high quarterly net profit of Rs 1.2 trillion in Q2FY25, up from Rs 1.02 trillion in Q2FY24 and Rs 1.15 trillion in Q1FY25.
Their gross interest income increased to Rs 7.39 trillion in Q2FY25 from Rs 6.46 trillion in Q2FY24 and Rs 7.04 trillion in Q1FY25.
The performance gap between BFSI and non-BFSI sectors was driven by weaknesses in oil & gas (including Reliance Industries), automotive, cement, and fast-moving consumer goods (FMCG) sectors.
However, companies in IT services and consumer durables outperformed, posting double-digit Y-o-Y net profit growth in Q2FY25.
Weaker-than-anticipated revenue and earnings growth in Q2FY25 is prompting brokerages to revisit their growth projections for FY25 and FY26.
“The Nifty 50 index earnings per share (EPS) estimate for FY25 was cut by 1.2 per cent to Rs 1,059 and FY26E EPS was also reduced by 1 per cent to Rs 1,256 (from Rs 1,269 earlier).
"The downgrade has been led by BPCL, Reliance Industries, Maruti Suzuki, Bajaj Finance, and IndusInd Bank,” wrote analysts at Motilal Oswal Securities in their interim earnings review for Q2FY25.
