Q4FY25 Profit Growth Highest in 8 Quarters, But Boosted by Other Income

India Inc has delivered a surprisingly strong show in Q4FY25, with profit growth hitting an eight-quarter high. However, a closer look reveals that the performance was heavily skewed by a sharp jump in ‘Other Income’, raising questions about the true strength of the underlying business growth.

12.4% Sequential Profit Growth – Best in 8 Quarters

According to an analysis of 472 companies (excluding BFSI, oil, and gas), the aggregate net profit rose by 12.4% quarter-on-quarter, marking the highest sequential growth in eight quarters. On a year-on-year basis, profit rose 10%, making it the biggest YoY jump in the last two quarters.

This strong growth in net profit seems to have caught many analysts by surprise.

Other Income at an All-Time High

What stands out this earnings season is the sharp rise in ‘Other Income’, which contributed 11% to the overall earnings—the highest in the last eight quarters. This has raised eyebrows in the analyst community, as it potentially masks the true operating performance of several companies.

Siddharth Bhamre, Head of Institutional Research at Asit C. Mehta Financial Services, noted that relying on net profit alone can be misleading in such cases, as ‘Other Income’ often inflates the bottomline. He emphasized,

“Even for companies that have seen revenue expansion, the growth momentum will be slow.”

Auto and Realty Lag Behind, Banking Outperforms

While some sectors saw resilience, others struggled. Analysts pointed out that the auto and realty sectors remained weak links in the Q4FY25 earnings. Despite hopes of a demand pickup, these sectors did not meet expectations.

In contrast, the banking sector outperformed, even amid muted expectations. This is noteworthy, considering margin pressures and slower loan growth had earlier dampened the outlook for banks.

Mixed Bag for Pharma and Midcaps

Pharmaceutical companies had a decent Q3, but Q4 earnings came under pressure due to a high base effect. However, the export-oriented pharma sector remains resilient, continuing to support overall earnings.

The midcap segment also made a slight positive contribution to the quarter’s overall performance, indicating steady but limited strength in smaller companies.

High Base, Weak Demand, and Cost Pressures

Siddharth Khemka, Head of Research at Motilal Oswal, explained that Q4FY25 earnings came against the backdrop of a high base, making it difficult to deliver high growth. He also pointed to weak consumption demand across many sectors.

“Income levels haven’t risen, while costs have gone up,” he said, hinting at margin pressures and muted demand as key hurdles for companies going forward.

In Summary

Q4FY25 has delivered the highest net profit growth in eight quarters, but the gains are largely driven by a surge in ‘Other Income’. While sectors like banking and pharma held up, auto and realty continued to underperform. With weak demand and rising costs, analysts remain cautious about the sustainability of growth in the upcoming quarters.