What is PAT? How to Analyze Profit Growth of Indian Companies
PAT is the final profit that actually belongs to shareholders.
PAT (Profit After Tax), also called net profit, is the bottom line of the income statement. It is what remains after deducting all expenses, interest, depreciation, and taxes from revenue. PAT is the profit that belongs to shareholders and can be distributed as dividends or retained for growth.
When Infosys reports PAT of Rs.26,000 crore, this is the amount available for shareholders. The company can pay dividends from this, buy back shares, or reinvest in the business. PAT drives EPS, which drives stock valuation. Growing PAT is the primary engine of long-term stock returns.
PAT = Revenue - All Expenses - Interest - Tax
If Revenue Rs.1,00,000 Cr, Total Expenses Rs.75,000 Cr, Interest Rs.5,000 Cr, Tax Rs.5,000 Cr: PAT = 1,00,000 - 75,000 - 5,000 - 5,000 = Rs.15,000 Cr
How to analyze PAT quality?
Compare PAT with operating cash flow. If PAT consistently exceeds cash flow, earnings quality is poor. Check for one-time items inflating PAT (asset sales, tax refunds). Look at PAT growth alongside revenue growth. If PAT grows faster than revenue, margins are improving. If PAT grows slower, margins are compressing.
What is adjusted PAT?
PAT excluding one-time or exceptional items. If a company sold a building for Rs.200 crore gain, reported PAT includes this. Adjusted PAT removes it to show sustainable, recurring profitability. Analysts focus on adjusted PAT for valuation because one-time items do not repeat.
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Frequently Asked Questions
Is PAT the most important profit metric?
It is the final answer, but understanding what drives PAT matters more. A company can have growing PAT due to lower tax (not sustainable), lower depreciation (accounting change), or better operations (sustainable). Always look at the components. Use StockkAsk at stockk.trade/stockkask for PAT breakdown analysis.
Can a company have positive PAT but be in trouble?
Yes. If PAT relies on non-operating income (investments, asset sales) while core operations are loss-making. If PAT is positive but cash flow is negative. If PAT grows only because of tax benefits expiring soon. Quality of profit matters as much as quantity.
What PAT growth rate should investors expect?
15% annual PAT growth is solid for large Indian companies. 20%+ is excellent. Below 10% for a large-cap suggests maturing growth. For small and mid-caps, 25%+ growth is achievable. Always compare PAT growth to the company's P/E to check if growth justifies the valuation.
How does PAT relate to dividends?
Dividends are paid from PAT. Dividend payout ratio = Dividends / PAT. A company paying 50% of PAT as dividends retains the other 50% for growth. Paying more than 100% of PAT as dividends (from reserves) is unsustainable.
Is PAT or EBITDA more useful for stock analysis?
Both serve different purposes. PAT shows what shareholders actually earn. EBITDA shows operating performance before capital structure effects. For valuation, P/E uses PAT. For business quality comparison, use EBITDA margins. Both together give the complete picture.
Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice.
INDIRA SECURITIES PRIVATE LIMITED : SEBI REG. NO.: INZ000188930, NSE TMID: 12866, BSE TMID: 663, CDSL DPID: 17000, MCX TM ID: 56470, NCDEX TM ID: 01277, CDSL REG.NO.: IN-DP-90-2015, CIN:U67120MP1996PTC085111, RA SEBI REG. No.: INH000023269, IA SEBI REG No.: INA000021410
