Notwithstanding the more than 2x rise in profits (profit after tax, PAT) of listed companies in the last three years, the aggregate corporate profit has been largely stable to only slightly better. It means that the profits of the unlisted sector have actually worsened materially in the post-Covid period, as per a research by Motilal Oswal.
According to Motilal Oswal Financial Services, the unlisted corporate sector is not only much bigger than its listed counterpart, the latter has moved in a different direction vis-a-vis the former. While the financial position of listed sector has improved markedly in the post-Covid period (FY20-FY23), this is clearly not the case for the aggregate corporate sector. It means that the financial position of the unlisted corporate sector has weakened in the post-Covid period.
The corporate (non-financial companies, NFCs) sector accounts for almost 40 per cent of India’s nominal gross value added (GVA). The listed companies, however, contribute only about 30 per cent of the corporate GVA, or only about 11-12 per cent of the national GVA. It means that the unlisted corporate sector is more than 2x the size of the listed sector in terms of GVA. What more, while GVA of listed companies has improved in the post-Covid period (FY20-FY23), it has weakened for the aggregate corporate sector, entirely because of the unlisted corporate sector, the report said.
Not only profits and GVA, the listed corporate sector has also seen a remarkable improvement in its financial position, as they have deleveraged. Debt of listed companies has declined to 13.4 per cent of GDP in FY23, down from 16-17 per cent of GDP in the pre-Covid years.
Like PAT, the unlisted sector accounts for almost half of aggregate corporate profit before tax in the country. Further, almost the entire improvement in the aggregate corporate PBT (only for profit-making units) during the post-Covid period is on account of the listed companies, as the improvement in PBT growth in the unlisted sector was minimal.
What is very interesting to note is that while the profits (before and after taxes) of the listed companies have improved significantly in the past few years, their share in total corporate income taxes has actually declined in the post-Covid period. Taxes paid by the listed companies (using cash flow statements) grew only 2.8 per cent per annum in the post-Covid period, compared to 13.7 per cent YoY growth in the pre-Covid period. Further, like in profits, the unlisted sector accounts for about 55-60 per cent of total corporate income taxes paid in the country, the report said.
Lastly, the corporate sector accounts for roughly about half of the total investments (excluding acquisition of valuables) rate of 30 per cent of GDP in India. Of this, the listed companies used to account for about a quarter in the pre-Covid years.
“Overall, the performance of the equity market is a reflection of the financial position of the listed companies, which has improved tremendously in the post-COVID period (since 2HFY21). It’s crucial to note that this improvement has come at the cost of the unlisted corporate sector, which holds greater economic significance. Our analysis suggests that not only the unlisted corporate sector accounts for half of the aggregate corporate profits in the country (before and after taxes), but it accounts for 55-60% of total corporate income taxes paid, two-thirds of corporate GVA and corporate capex, and about three-fourths of corporate debt in India,” said Motilal Oswal in a note.
The listed corporate sector has increased its capex substantially in the past two years. Conversely, mirroring its weaker financial condition, the unlisted sector – which is almost 3x larger than that of the listed sector – has experienced a considerable deceleration in capex. This discrepancy is one of the key factors contributing to the declining trend corporate investments across India.
” While we consider the listed companies as a proxy for India’s corporate sector, possibly due to lack of timely data, our estimates (using the residual approach) suggest that not only is the unlisted corporate sector much bigger than its listed counterpart, the latter has moved in a different direction vis-à-vis the former,” said the brokerage.
First Published: Dec 20 2023 | 8:59 AM IST