Growth in India Inc profits, sales slows down in third quarter: Study

While high inflation impacted many sectors like FMCG, the growth in net sales of corporates also slowed by 5.9 per cent to Rs 28.43 lakh crore in the October-December 2024 quarter, compared to a rise of 7.4 per cent (Rs 26.85 lakh crore) in the corresponding quarter of the previous fiscal. The dip in profitability in the quarter was due to increase in input costs driven by elevated inflation.

“Overall net profits growth was in double digits at 14 per cent compared with 16.6 per cent last year. The major factors accounting for pressure in profits growth where growth in sales was steady were related to higher input costs as inflation has been high during this period,” said Madan Sabnavis, chief economist, Bank of Baroda (BoB). The findings are based on the results of 1,899 companies for Q3 FY2025 analysed by BoB.Higher inflation impacted earnings of consumer goods companies. “It’s been an extraordinarily high inflationary environment. If you look at the CFPI (consumer food price inflation), which is the food inflation, it was almost at double digits in this quarter,” Britannia Industries Vice Chairman and Managing Director Varun Berry had said during Q earnings call.

“And if you were to look at some of the key food — so if you were to look at cereals, it was about 6.5 per cent, oils and fats was almost at about 15 per cent, and similarly, vegetables and fruits and everything was pretty high single digits or double digits,” he had said.

Announcing the Q3 results, Rohit Jawa, CEO and MD, Hindustan Unilever Ltd (HUL) said FMCG demand trends remained subdued with continued moderation in urban growth while rural sustained its gradual recovery. HUL reported a 19 per cent rise in the third quarter profit (Q3) to Rs 3,001 crore on account of a one-time gain of Rs 509 crore from the divestment of Pureit business. The profit before exceptional items was flat. “HUL reported an underlying sales growth (USG) of 2 per cent and a flat underlying volume growth (UVG) in the December quarter. While absolute volume grew competitively, it was offset by a negative mix,” the company said.

Tata Motors Ltd reported a 22.40 per cent year-on-year drop in consolidated net profit to Rs 5,451 crore for the third quarter (Q3) ended December 2024 as against Rs 7,025 crore a year ago in the wake of weaker margins and subdued Jaguar Land Rover (JLR) volumes despite a sequential improvement.

Among sectors, banking, financial services and insurance (BFSI) witnessed highest growth in Q3 net profit during, hence managing the cost factor adequately. The sector net profit grew 20 per cent (Rs 1.32 lakh crore) in Q3 FY2025, as against a growth of 15.2 per cent (Rs 1.09 lakh crore).

Excluding the BFSI sector, growth in net profits would be 10.2 per cent in Q3 FY2025 as against 17.5 per cent last year. For the non-consumer manufacturing segment, profits were pushed down by the crude oil and iron & steel industries which witnessed decline in growth.

In terms of sales, there was an improvement in growth for all broad groups except BFSI where growth slowed down from 21.7 per cent to 8.9 per cent. Besides the high base effect, which affected banks in particular where growth slowed from 28.4 per cent to 11.2 per cent, there was negative growth in insurance of -0.9 per cent against 6.1 per cent last year.

There was marginal recovery in growth in sales for the non-consumer manufacturing sector from -0.3 to 1.1 per cent in October-December. Growth in sales for non-consumer services, consumer services and consumer-manufacturing was higher in Q3-FY25 compared with Q3 FY2024.

“There is a clear K-shaped recovery that can be seen through the corporate results,” Sabnavis said. Crude oil and steel have been the ones on the manufacturing side which have been under pressure. The auto segment in particular has also faced headwinds on the costs side though has registered steady growth of 8.7 per cent in sales. The services segments have also performed well on both manufacturing and services fronts.

Earnings outlook

The fourth quarter (Q4) is expected to be better on a quarter-on-quarter (QoQ) basis, indicating earnings growth due to rise in government spending and moderation in input cost. “A similar type of growth is visible on the broader Nifty 500 index with 8-9 per cent earnings growth, due to in-line results from financials, hospitality, cement, IT, pharma and real estate,” said Vinod Nair, Head of Research, Geojit Financial Services.

For the next financial year (FY2026), corporate earnings are expected to improve, driven by a consumption demand, rise in government spending, a strengthening rural economy, and improvement in external demand, he said.