Private Sector Firms in India Report Increased Profits and Reduced Debt: RBI

Synopsis

The RBI's latest data reveals a strong performance by India's private sector companies in 2023-24, showcasing increased operating and net profit margins alongside reduced debt levels, indicating a growing financial strength across major sectors.

Key Takeaways

Operating profits increased by 15.3% in 2023-24.
Post-tax profit growth for services sector was at 38.1%.
Debt-to-equity ratio continued to moderate.
Internal sources contributed over two-thirds of total funding.
Gross fixed assets grew by 10%.

New Delhi, Feb 25 (NationPress) The operating profit margin and net profit margin of private sector companies in India saw a significant increase across key sectors during 2023-24, accompanied by a reduction in their debt levels, indicating enhanced financial robustness as per the latest data from the RBI.

According to the RBI report, operating profits rose by 15.3 percent in 2023-24, compared to a modest 4.2 percent growth in the previous year, across the aggregate level. The growth in operating profit for the manufacturing and services sectors was recorded at 13.2 percent and 15.5 percent, respectively, in 2023-24, a notable rebound from the declines of (-) 3.9 percent and 16.8 percent in 2022-23.

The post-tax profit increased by 16.3 percent in 2023-24, with the services sector witnessing a remarkable post-tax profit growth of 38.1 percent, compared to a more modest 7.6 percent in the manufacturing sector.

The Reserve Bank released this data concerning the financial performance of non-government, non-financial (NGNF) public limited companies in 2023-24, based on the audited annual accounts of 6,955 companies.

The leverage of these companies, gauged by the debt-to-equity ratio, continued to decrease in 2023-24, as highlighted in the report.

The interest coverage ratio (ICR) improved to 4.1 in 2023-24, as growth in gross profits outpaced the increase in interest expenses; the ICR for manufacturing companies remained stable at 6.3, while it slightly improved to 3.2 for services companies, according to the RBI.

Internal funding sources contributed over two-thirds of the total funds for this sample of public limited companies in 2023-24, primarily due to an increase in reserves and surplus, the report noted.

The gross fixed assets of these public limited companies experienced a 10 percent growth in 2023-24, with significant growth observed in sectors such as manufacturing, chemicals, pharmaceuticals, electrical equipment, motor vehicles, and other transport vehicles, as per the RBI.

Moreover, the report pointed out that the operating profit growth of private limited companies—those not listed on stock exchanges—also accelerated in 2023-24, at both the aggregate level and within manufacturing and services sectors. Consequently, profit margins, measured by the ratios of operating profit and profit after tax to sales, improved during this period.

At the aggregate level, the leverage (in terms of the debt-to-equity ratio) for this sample of companies remained close to last year's level at 45.2 percent as of March 2024. The electricity, gas, steam and air conditioning supply, and construction sectors continued to exhibit high leverage, although some moderation was observed in 2023-24, the report stated.

Overall, the ICR improved to 3.1 in 2023-24 from 2.7 in the previous year; the ICR for manufacturing and services sectors also saw improvements, standing at 8.3 and 2.7, respectively.