MUMBAI: Profitability of Indian companies has soared almost threefold between the pandemic (2020-21) and fiscal 2025, scaling to a whopping Rs 7.1 trillion in fiscal 2025 from Rs 2.5 trillion in fiscal 2021, fuelled by the pandemic-induced pent-up demand, cost efficiency due to higher deployment of technology, and large companies leveraging supportive fiscal and monetary policies.
This has seen lifted the corporate profit-to-GDP ratio to a 17-year high of 4.7 percent in FY25, indicating the increasing strength and profitability of the corporate sector. According to analysis by the researchers at the RBI as put out in the October bulletin, corporate profits nearly tripled in the past four years—between the pandemic hit fiscal 2021 and fiscal 2025 at Rs 7.1 trillion from Rs 2.5 trillion, aided by pent-up demand (which however did not last beyond a few months), manufacturing resilience, and deleveraged balance sheets.
Recently, SBI chairman CS Setty had said corporate credit is not growing as companies are sitting on huge cash piles—as much as Rs 13.5 trillion—so they don’t need even working capital loans from banks. While in the first quarter of FY21, the economy had contracted by a whopping 23.6%, the full year ended with a contraction of 7.3 percent thanks to the unplanned and brutal lockdowns leading to the death of millions and no official death numbers are made available even today.
Many private calculations put the toll at least 4.5 million due to the pandemic. Noting that corporates made have made a strong rebound from the pandemic with sales growing 32.5 percent in FY22 before normalizing to 7.2 percent by FY25, indicating a shift from a rapid recovery to more stable growth, says the bulletin. This has helped companies deleverage their balance sheets, helping them improve their ability to service debt, evidenced by a significant rise in the interest coverage ratio, especially for medium and small firms.
This has seen the corporate profit-to-GDP ratio also reached a 17-year high of 4.7 percent in FY25, indicating the increasing strength and profitability of the corporate sector. The companies also improved their cost management by adopting effective cost-cutting measures and operational efficiency improvements, helping them improve their operating profit margins.
While smaller firms also showed improvement, large companies were the primary drivers of the overall profitability. From a sectoral angle, the manufacturing sector maintained stable profit margins, while the non-IT services sector returned to positive territory by FY24 after facing volatility. The consumer durables, healthcare, and capital goods sectors showed particularly strong profit growth in FY25.
According to the report, the weak domestic economic activity underpinned by sluggish private consumption during FY20 and the pandemic over blew the situation causing a significant contraction in sales and profitability. However, the corporate sector rebounded strongly thereafter, supported by fiscal and monetary policies, pandemic led pent up demand, and effective cost management.
While net profit margins of the IT sector moderated during the post-pandemic period due to slowdown in activities coupled with higher salary outgoes, net profit margin of non-IT service sector remained in the negative zone since the pandemic before returning into positive territory in FY24. On the other hand, operating profit margin exhibited relatively lower volatility at aggregate level, though operating profit margin of non-IT sector remained volatile -- from 19.2 percent in FY17 to the low of 11.7 percent in FY19 and bounced back to a high of 22.4 percent in FY24.
“Large companies emerged as the primary contributors to overall profitability, consistently achieving higher operating profit margins compared to medium and small size firms. Despite the pandemic induced sale declines, companies managed to improve their operating profit margins through effective cost-cutting measures and operational efficiency enhancements during the crisis,” the report said.
Also, the corporate sector continued to deleverage their balance sheets helping them to take up fresh investment. The medium and small firms enhanced their debt servicing capacity, which aided their overall financial stability. According to the report, “deleveraging of balance sheet by corporates and improved profitability helped better debt serviceability across the size categories."
When examining debt serviceability across firm size, medium and small-sized companies demonstrated higher debt serviceability compared to their larger counterparts. However, it was large companies that significantly drove the debt serviceability metrics of listed private non-financial corporates.
”With a robust financial foundation and adaptive strategies, the sector remains well-placed to capitalise on future opportunities and contribute to sustained economic expansion," concludes the bulletin.
