Performance of Private Corporate Business Sector during Q1 2024-25 released by RBI on 30th Aug 24

The RBI’s report on the performance of the private corporate business sector for Q1 2024-25, released on August 30, 2024, highlights a robust performance despite some sectoral variations. Private corporate businesses, defined under Section 2(68) of the Companies Act, 2013, are characterized by restricted share transferability and specific membership limits. The report shows an aggregate sales growth of 6.9% year-on-year, maintaining momentum from the previous quarter but surpassing last year’s 2.1% growth. The manufacturing sector, holding the largest share of total sales at 67.5%, saw overall growth, though sectors like cement and steel faced declines. Expenditures rose, with manufacturing’s raw material costs up by 6.4% and staff costs in IT and non-IT services increasing significantly. Operating profits and net profits saw notable increases of 9.6% and 14.2%, respectively, with the highest profit growth observed in the electricity and construction sectors. The interest coverage ratio improved slightly for manufacturing and non-IT companies, while IT companies maintained a high ratio of 42.9%. Overall, the sector’s performance reflects varied but generally positive economic activity, with significant growth in specific areas such as construction.

Who is Private Corporate business:

Section 2(68) of Companies Act, 2013 defines private companies. According to that, private companies are those companies whose articles of association restrict the transferability of shares and prevent the public at large from subscribing to them. This is the basic criterion that differentiates private companies from public companies.

Features of Private Corporate business:

1. No minimum capital required: There was a minimum paid-up share capital requirement of Rs. 1 lakh previously, but that is omitted now.

2. Minimum 2 and maximum 200 members: A private company can have a minimum of just two members (but just one is enough if it a One Person Company), and a maximum of up to 200 members.

3. Transferability of shares restricted: Private companies cannot freely transfer their shares to the public like public companies. This is why stock exchanges never list private companies.

4. “Private Limited”: All private companies must include the words “Private Limited” or “Pvt. Ltd.” in their names.

5. Privileges and exemptions: Since private companies do not freely transfer their shares and involve limited interest by members, the law has granted them several exemptions that public companies do not enjoy.

Types of Private Corporate Business:

1. Limited by shares: The liability of the members is limited to the amount unpaid to the company with respect to the shares held by them.

2. Limited by guarantee: Here the members’ liabilities are limited to the amount of money they guarantee to pay in case the company is wound-up.

3. Unlimited liability: The liability of members is unlimited in this type of private companies. Personal assets of members can be attached and sold when the company is being wound-up.

Highlights of release by RBI

Sales

• Aggregate sales growth of listed private non-financial companies at 6.9% (y-o-y) during Q1:2024-25 remained close to that in the previous quarter but higher than 2.1% growth a year ago.

All major sectors, viz.,

• manufacturing (67.5 % share in total sales),
• information technology (IT) (10.1 %),
• non-IT services (12.8 %),
• construction (5.3 %)
• electricity (2.9 %) and
• mining (1.1 %) recorded higher sales when compared to the corresponding quarter last year; within manufacturing sector, however, sales of cement, iron and steel, fertilisers, paper products and glass products declined (Tables 2A and 5A).

Expenditure

• Manufacturing companies’ expenses on
• raw material rose by 6.4 % (y-o-y) in consonance with their sales growth,
• whereas their staff cost recorded higher increase of 10.7 % during Q1:2024-25;
• staff cost of IT and non-IT services companies increased by 2.4 % and 12.8 %, respectively, (Table 2A and 2B).
• Staff cost to sales ratio for manufacturing, IT and non-IT services companies stood at 5.8 %, 49.1 %, and 11.0 %, respectively, during Q1:2024-25 (Table 2B).

Pricing power

• At aggregate level, operating profit and net profit rose by 9.6 % and 14.2 % (y-o-y), respectively, during Q1:2024-25 (Table 1A and 1B).
• Operating profits of manufacturing, IT and non-IT services companies rose by 9.3 %, 5.1 % and 6.0 %, respectively, during Q1:2024-25 and their operating profit margin stood at 14.6 %, 22.5 % and 21.4 %, respectively; operating profits of listed companies in electricity and gas supply sectors, and construction sectors, however, recorded much higher growth of 28.6 % and 28.4 %, respectively, (Table 2A, 2B and 5A).

Interest expenses

• Interest coverage ratio (ICR) of manufacturing and non-IT companies improved marginally to 7.9 and 1.8 %, respectively, during the latest quarter; ICR for IT companies remain elevated at 42.9 per cent (Table 2B).

List of Tables

The difference between financial and non-financial companies is as follows:

• Financial companies deal with financial assets such as loans, shares, or pension funds.
• Non-financial companies hold tangible assets, which are based on physical net worth.
• Financial assets are easier to sell than non-financial assets.

Summary at Glance:

• Major sector with highest sale is manufacturing sector with 67.5%
• Highest expenditure is in IT sector with 49.1%
• Construction sector reported highest growth during the period i.e. 28.6%