Corporate Profits Jump 15.3% in FY24 Despite Slow Sales: RBI
Indian corporate profits witnessed a strong rise of 15.3% in FY24, even as sales growth remained moderate at 5.5%, according to the Reserve Bank of India (RBI) report. The report highlights that cost-cutting measures played a key role in improving profit margins, helping companies maintain financial strength despite economic uncertainties. While the services sector showed resilience, manufacturing struggled with slower growth.
The services sector outperformed manufacturing, with sales growing by 6.8% and operating profits increasing by 15.5%. This follows a 16.8% profit growth in FY23, indicating sustained momentum. The profit after tax (PAT) in services surged by 38.1%, driven by efficiency in operations.
On the other hand, the manufacturing sector faced headwinds, with sales growth slowing to 4.1% in FY24. This decline was largely due to weak performance in metals, chemicals, pharmaceuticals, and refined petroleum products. Still, manufacturers managed to boost operating profits by 13.2% and PAT by 7.6%, marking a recovery from the 3.9% decline in FY23.
The report underscores that cost-cutting strategies were central to profit expansion. Operating expenses increased by just 3.4%, mainly due to controlled manufacturing costs. Additionally, employee remuneration growth slowed in both sectors, allowing firms to maintain stable financials. These measures led to improved operating and net profit margins, even with sluggish sales.
The RBI analyzed data from 6,955 non-financial public companies, revealing improved financial stability. Debt-to-equity ratios declined, showing reduced dependency on borrowed funds. More importantly, the interest coverage ratio (ICR) rose to 4.1 in FY24, indicating that companies are in a better position to meet their debt obligations.
| Key Aspect | Details |
|---|---|
| Why in News? | Corporate profits grew 15.3% in FY24 despite sluggish 5.5% sales growth, driven by cost-cutting strategies. |
| Services Sector | Sales grew 6.8%, operating profits rose 15.5%, and PAT surged 38.1%, showing strong performance. |
| Manufacturing Sector | Sales growth slowed to 4.1%, but operating profits rose 13.2% and PAT increased by 7.6%, reversing the 3.9% decline in FY23. |
| Cost Management | Operating expenses rose only 3.4%, with slower employee remuneration growth, improving profit margins. |
| Financial Health | Debt-to-equity ratio declined, interest coverage ratio (ICR) improved to 4.1, signaling better debt management. |
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