The most profitable industries in India

This post presents aggregated analysis of the most and least profitable industries in India in 2018.

Profitability is described by different accounting metrics, each one with its own merits and drawbacks.

EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) is useful when comparing companies within a sector where some participants might have made recent investments compared to others who been around a long time. It inflates profitability for companies that aggressively capitalise costs.

EBIT (Earnings before Interest and Taxes) ignores the composition of capital structure i.e. extent of Debt involved (like EBITDA). Useful in comparing across industries which might have different tax incentives

Net Profit, the final item on the Profit & Loss Statement takes out all costs and is the Earnings in Earnings per Share. It is also most amenable to be massaged to show desired trends with minor adjustments of various line items above

While no one metric is sufficient to gauge true profitability, taken together, particularly when tracked over time, they give a sense of the depth of profit pools in various industries.

[Read an excerpt from Seth Klarman’s book, Margin of Safety at the bottom of this post beautifully explaining why Net Profit > EBIT > EBITDA as a valuation tool]

How the rankings were determined: Simplistically.

Aggregate [Profit Metric] in ₹ for the sector / Aggregate Sales for the sector

This implies the rankings are sales-weighted and give higher weight to larger companies by Sales in their respective sectors.

2018 Most Profitable Industries – Total Sector Sales > 15,000 Crores (~ USD 2 Billion)

Most Profitable Industries in India 2018 | Total Sales /> 15000 Crores
Most Profitable Industries | Total Sales > 15,000 Crores

2018 Least Profitable Industries – Total Sector Sales > 15,000 Crores (~ USD 2 Billion)

Unprofitable Industries in India | Sales /> 15000 Crores
Least Profitable Industries | Total Sales > 15,000 Crores

2018 Most Profitable Industries – Total Sector Sales > 3,000 Crores (~ USD 430 Million )

Most Profitable Industries India
Most Profitable Industries | Total Sales > 3,000 Crores

2018 Least Profitable Industries – Total Sector Sales > 3,000 Crores (~ USD 430 Million)

Worst Sectors India 2018
Least Profitable Industries | Total Sales > 3,000 Crores

Interestingly, stock returns do not necessarily follow profitability. [Does sector-picking trump stock-picking?]

Most profitable companies in industries (Total Sales > 15,000 Crores)

By EBITDA %

  1. Hindustan Oil Exploration Co.
  2. ITC
  3. SUN TV Network
  4. Power Grid Corporation
  5. Hindustan Zinc
  6. Sadbhav Infrastructure
  7. Oberoi Realty
  8. HEG Ltd
  9. Oracle Financial Services
  10. Bajaj Corp.

By EBIT %

  1. DLF
  2. ITC
  3. Hindustan Zinc
  4. Hindustan Oil Exploration Co.
  5. SUN TV Network
  6. IL&FS Transportation Network
  7. SJVN
  8. Oracle Financial Services
  9. HEG Ltd.
  10. Bajaj Corp.

By Net Profit %

  1. ITC
  2. Hindustan Zinc
  3. Hindustan Oil Exploration Co.
  4. SUN TV Network
  5. Oracle Financial Services
  6. Marathon Nextgen Realty
  7. Bajaj Corp.
  8. HEG Ltd.
  9. Eris LifeSciences
  10. Eicher Motors

Disclaimer: Stocks mentioned are for informational purposes and are not recommendations to buy or sell. Errors have a nasty habit of creeping in when working with cumulative numbers. Any errors in the analysis are unintended, please write to thecalminvestor [at] gmail [dot] com


This is an excerpt from Seth Klarman’s “Margin of Safety” beautifully explaining the drawback of EBITDA over EBIT

EBITDA Analysis obscures the difference between good and bad businesses

EBITDA, in addition to being a flawed measure of cash flow, also masks the relative importance of the several components of corporate cash flow. Pretax earnings and depreciation allowance comprise a company’s pretax cash flow; earnings are the return on the capital invested in a business, while depreciation is essentially a return of the capital invested in a business. To illustrate the confusion caused by EBITDA analysis, consider the example portrayed in exhibit 1.

The Calm Investor | Seth Klarman Margin of Safety

Investors relying on EBITDA as their only analytical tool would value these two businesses equally. At equal prices, however, most investors would prefer to own Company X, which earns $20 million, rather than Company Y, which earns nothing. Although these businesses have identical EBITDA, they are clearly not equally valuable. Company X could be a service business that owns no depreciable assets. Company Y could be a manufacturing business in a competitive industry. Company Y must be prepared to reinvest its depreciation allowance (or possibly more, due to inflation) in order to replace its worn-out machinery. It has no free cash flow over time. Company X, by contrast, has no capital-spending requirements and thus has substantial cumulative free cash flow over time.

Anyone who purchased Company Y on a leveraged basis would be in trouble. To the extent that any of the annual $20 million in EBITDA were used to pay cash interest expense, there would be a shortage of funds for capital spending when plant and equipment needed to be replaced. Company Y would eventually go bankrupt, unable both to service its debt and maintain its business. Company X, by contrast, might be an attractive buyout candidate.

The shift of investor focus from after-tax earnings to EBIT and then to EBITDA masked important differences between businesses, leading to losses for many investors.




2 thoughts on “The most profitable industries in India

  • June 9, 2018 at 2:17 pm
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    EBITDA is a poor indicator for high capex industries like telecom. The costs in telecom are mostly after EBITDA – spectrum amortisation and finance cost. Perhaps you could look at EBITDA as a percentage of the investment?

  • June 9, 2018 at 11:09 pm
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    No arguments there Chetan. The objective here was to purely to do EBITDA with all its limitations.

What do you think?