Corporate profit to GDP ratio hits 10 -yr high

India Inc’s combined net profit was up 57.6% to ~5.31 trillion in FY21

The outbreak of the Covid-19 pandemic and the subsequent lockdowns to contain its transmission dented India Inc’s sales and revenues in 2020-21 (FY21), even as the decline in prices of raw materials and cost of capital boosted companies’ profits to a decade high.

The combined net profit of the listed companies was up 57.6 per cent to ~5.31 trillion in FY21. As a result, the corporate profit share in India's gross domestic product (GDP) hit a 10-year high of 2.63 per cent in the last financial year. The ratio was at a record low of 1.6 per cent in FY20, while it was the highest in FY11 at 3.2 per cent.

Corporate revenue to GDP also inched up to 34.4 per cent in FY21, up from 33.6 per cent, but the ratio was still lower than 35.7 per cent two years ago. India Inc’s revenue share in GDP had peaked at 41.9 per cent in FY15.

The companies' combined revenue (including other and fee income) was down 2 per cent in FY21 to around ~67 trillion. For comparison, India's GDP at current prices was down 4.2 per cent in FY21 to ~194.5 trillion, according to the advance estimates by the National Statistical Organisation (NSO).

The numbers suggest that the gains in corporate profits largely came from a sharp decline in operating and capital expenses after the pandemic rather than higher sales volumes and revenues. Commodity producers such metals, cement, and chemicals, however, gained from higher prices for their products, thanks to a global rally.

Owing to a global collapse in commodity prices in the first half of FY21, India Inc’s raw material costs were down 14.1 per cent in the year, while power and fuel costs were down 8.2 per cent. As a result, every ~100 worth of net sales cost ~51.6 worth of raw materials and power and fuel in FY21, down from ~56.4 a year ago and a record high of ~65.8 in FY12.

The companies’ raw material and energy costs in FY21 were the lowest in at least 13 years.

The analysis is based on annual finances of a common sample of 1,054 companies, which have so far declared their results for FY21 or CY20. These companies had a combined market capitalisation of ~186 trillion as on Friday, accounting for 84 per cent of the market cap of the listed companies. The profit and loss figures have been adjusted for the listed subsidiaries of other listed holding-cum-operating companies in the sample.

While the post-pandemic changes in the macro-economy benefitted companies across sectors, the biggest gains accrued to commodity producers and companies in the financial sector -- banks, insurance and non-banking finance companies (BFSI).

The combined net profit of BFSI firms was up 79.3 per cent in FY21 to a record high of ~1.49 trillion as banks saw a sharp rise in their margins or spread, thanks to a decline in their interest cost. Lenders’ combined interest cost was down 2.7 per cent in FY21 — for the first time in at least 12 years — even as their gross interest income was up 9 per cent. Interest cost accounted for a record low of 46.2 per cent of their gross interest income in FY21, as against 51.8 per cent a year ago and a high of 64.4 per cent in FY09.