Number theory: How did Corporate India perform in the December 2022 quarter?

There are 2,109 non-financial companies in the Prowess database for which December quarter results are available along with quarterly results for the last five years.

India’s GDP grew at 4.4% in the quarter ending December 2022, according to data released by the National Statistical Office (NSO) on February 28. Headline GDP numbers indicate a broad-based slowdown in growth driven by a weakness in private consumption. Is this slowdown visible in the corporate sector? An HT analysis of the latest quarterly results from the Centre for Monitoring Indian Economy’s (CMIE) Prowess database sheds light on this question. There are 2,109 non-financial companies in the Prowess database for which December quarter results are available along with quarterly results for the last five years. Here are five charts that explain the broad trends.

A normal year-on-year comparison shows that the inflation adjusted sales of companies grew by 9% in the quarter ending December 2022.

Inflation adjusted sales are losing growth momentum

A normal year-on-year comparison shows that the inflation adjusted sales of companies grew by 9% in the quarter ending December 2022. This is lower than 20.9% and 40.6% growth in the September 2022 and June 2022 quarters, respectively. The loss in growth momentum is also visible if one were to make a quarter-on-quarter comparison. Inflation adjusted sales suffered a sequential contraction of 1.9% in the quarter ending December 2022 for the second time in a row, after falling in the September 2022 quarter (by 2.4%). To be sure, this trend might change when results for a larger sample of companies are available.

See Chart 1: Annual and sequential growth in inflation adjusted sales for non-financial companies

The growth problem is bigger for smaller firms

Not all companies registered a positive growth in inflation adjusted sales in the December 2022 quarter. If one were to classify companies into five categories by quarterly sales, the only companies which have shown an annual growth in inflation adjusted sales are those with quarterly sales above ₹500 crore. The situation is particularly bad for companies with quarterly sales lower than ₹10 crore per quarter, who have seen an annual contraction in sales for six consecutive quarters.

See Chart 2: Sales growth by different revenue categories

Cost pressures have slightly eased, but not enough to let profits grow

A year-on-year comparison shows that the inflation adjusted profits (net) of non-financial companies shrank by 22.9% in the December 2022 quarter. This marks the third consecutive contraction in the growth of net profits after the June 2022 quarter (3.1%). This has come at a time when cost pressures have slightly eased in the December 2022 from September 2022 quarter. Costs grew faster than sales (revenues) by 1.5 percentage points in the December 2022 quarter, which is lower than the difference of 3.7 percentage points in the September 2022 quarter. It is important to read growth in costs with sales because costs can be driven by both input cost inflation as well as a rise in production.

See Chart 3: Yearly growth in costs and profits

Raw material costs continue to rise faster than wages

The easing of cost pressures can also be seen in raw materials, which accounted for 62% of the total costs in the December 2022 quarter. Even though the pace of increase in the cost of raw materials fell to 10.9% in the December 2022 quarter, from 32.7% in the September 2022 quarter, it remained higher than the 6.3% wage growth in the December 2022 quarter. To be sure, the cost data for raw materials is available only for 1668 companies, which is around 80% of the available sample on wages (2109).

See Chart 4: Yearly growth in raw material costs and wages

Wage growth in big firms is slowing down

Did the slowdown impact workers? An analysis of companies by size of total sales can provide answers to this question. As is to be expected, companies with sales of less than ₹25 crores have not seen any rise in their wage bill. However, even bigger firms are seeing a slowdown in wage growth in comparison to the September 2022 quarter. Wage growth in the biggest firms (quarterly sales above Rs. 500 crore) fell to 6.6% in the December 2022 quarter, from 8.7% in the September 2022 quarter. In case of firms with quarterly sales between Rs.100 and Rs. 500 crore, wage growth fell to 3.7% from 4.8% over the same period. A slowdown in wage growth is bound to generate headwind for future demand and may well trigger a vicious cycle -- leading to low growth which will only put further pressure on wages.

See Chart 5: Wage growth by different revenue categories