The Covid-19 pandemic has catalyzed profound shifts in both domestic and global economies, generating ripple effects that are now transforming India’s corporate profit hierarchy. For over a decade, Reliance Industries (RIL) had maintained its stronghold atop India Inc’s profit chart. However, the latest financial quarter of 2023-24 witnessed an unprecedented development: the State Bank of India (SBI) surged ahead, toppling RIL from its long-standing position.
SBI Overtakes RIL in Q1FY24 Profits
During the first quarter of the fiscal year 2023-24 (Q1FY24), SBI, the largest lender in India, reported a consolidated net profit of Rs 18,537 crore. This remarkable figure surpassed RIL’s quarterly net profit of Rs 16,011 crore during the same period. This momentous shift marked only the second occurrence in the last two decades when SBI outperformed RIL in terms of trailing twelve-month (TTM) net profit. The first instance was recorded in the July-September quarter of 2011-12.
Historical Context
Traditionally, RIL had been in fierce competition with public sector oil and gas giants such as Oil and Natural Gas Corporation (ONGC) and Indian Oil Corporation (IndianOil) for the title of India’s most profitable company. It was IndianOil that last surpassed RIL in the profit hierarchy during the TTM ended April-June quarter of 2012-13. Prior to this, ONGC had secured a lead over RIL until the October-December quarter of FY12.
Factors Behind the Transition
RIL’s downturn in the profit ranking can be attributed to a significant decline in its refining and petrochemicals business. The oil-to-chemicals segment suffered due to adverse price movements in global fuel and petrochemical markets following the Russia-Ukraine conflict. Consequently, RIL’s consolidated net profit experienced a notable 10.6% YoY decrease to Rs 16,011 crore in Q1FY24, marking its weakest performance in eleven quarters.
In contrast, SBI’s remarkable rise in net profit can be attributed to factors such as accelerated credit growth, increased interest spreads between loans and deposits, and the resolution of past non-performing loans. The bank’s net profit surged by an impressive 153.1% YoY in Q1FY24.
Changing Sectoral Dynamics
The resurgence of SBI’s net profit is part of a broader transformation observed in India’s economic landscape. The banking, financial services, insurance (BFSI), and stockbroking sectors have gained substantial momentum, accounting for nearly 35% of corporate profits. This marks a significant surge from the pre-pandemic figure of around 10%. Conversely, the industrial and manufacturing sectors have faced a relative decline, resulting in subdued revenue and profit growth.
RIL’s Diversification Strategy
RIL’s shift in focus towards non-industrial sectors, such as retail and telecommunication services, has driven much of its incremental growth. Nevertheless, these newer divisions do not yield the same levels of profitability as RIL’s traditional industrial businesses, putting pressure on its overall earnings. Despite the growth witnessed in its new ventures, RIL’s consolidated net profit in Q1FY24 remained quite similar to its earnings in the October-December quarter of 2020-21.
The Covid-19 pandemic continues to serve as a catalyst for transformation across various sectors of the Indian economy. The shifting corporate profit hierarchy, with SBI outperforming RIL, highlights the changing dynamics and priorities in the country’s economic landscape. As sectors like BFSI gain prominence, traditional giants like RIL are finding the need to adapt and diversify to maintain their profitability in this evolving scenario.