Recent RBI figures suggest both the net profit margin and operating profit margin of India's private sector firms improved in key industries during 2023-24, and fell in their borrowing, as testimony to the general improvement in the financial solidity of these players.
As per RBI report, "The operating profits increased by 15.3 per cent in 2023-24 compared to 4.2 per cent growth in the earlier year at aggregate level. Growth in operating profits of the manufacturing and services sector was 13.2 per cent and 15.5 per cent respectively, in 2023-24, compared to (-) 3.9 per cent and 16.8 per cent growth during 2022-23.
During the same timeframe, post-tax earnings rose by 16.3 per cent, with businesses in the services sector witnessing a significant boost of 38.1 per cent as compared to a modest 7.6 per cent boost in the manufacturing sector.
The RBI’s compilation is based on the audited annual accounts of 6,955 non-government non-financial (NGNF) public limited companies for 2023-24. The report also reveals a moderation in these companies' leverage, as evidenced by a declining debt-to-equity ratio.
Moreover, the interest coverage ratio (ICR) also rose to 4.1 in 2023-24, with the growth in gross profit exceeding the growth in interest charges. Precisely, manufacturing firms had an ICR of 6.3, and services firms experienced a marginal rise to 3.2.
More than two-thirds of the entire amount of funds for the public limited companies surveyed was sourced internally in 2023-24, led predominantly by growth in reserves and surplus.
The RBI also reported 10 per cent growth in the gross fixed assets of these businesses during the year, with sectors like manufacturing, chemicals, drugs, electrical equipment, motor vehicles, and other transport vehicles reporting high asset growth.
Additionally, unlisted private limited companies also experienced quicker operating profit growth in 2023-24, both overall and in the manufacturing and services industries. Consequently, both operating profit and profit after tax margins, when expressed as a percentage of sales, improved during the period.
For these unlisted companies, the aggregate leverage, as indicated by the debt-to-equity ratio, was still nearly identical at 45.2 per cent as of March 2024. But industry segments like electricity, gas, steam and air conditioning supply and construction (including civil engineering) continued to show high leverage levels though with some decline in 2023-24.
Overall, the ICR of these businesses increased from 2.7 in the past year to 3.1 in 2023-24. The ICR of manufacturing and services segments also increased, to 8.3 and 2.7, respectively.
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