Other Income in P&L: Is It Inflating Profit?

In the quarter ended September 2025, Gujarat Mineral Development Corporation reported profit after tax of ₹466 crore — up 264% on the same quarter a year before (Inve data, Q2 FY26). On a screener, that line glows. Read past it, and the operating business behind it had a worse quarter than the year before: operating profit fell to ₹69 crore from ₹140 crore, and the operating margin slid from 24% to 13% (Inve data, Q2 FY26). The profit that tripled and the business that shrank were the same company, the same three months.

The gap was almost entirely one line: other income of ₹583 crore in a single quarter, against ₹62 crore the year before (Inve data, Q2 FY26). This is an illustration of a reporting mechanic, not a view on the stock. That is "other income" doing the heavy lifting, and it is one of the most common ways a flat — or shrinking — business wears the costume of a growing one. This article shows you the forensic test to catch it before the headline does, on a real, named case where the numbers are public and the cause is precisely identifiable.

What is "other income" and why does it distort profit quality?

Other income is everything a company earns that is not its main line of business. For a miner like GMDC, selling lignite is operating income; the interest it earns on its cash pile, dividends on investments, a forex gain, the write-back of a tax provision — all of that is other income.

It is not illegitimate. A cash-rich company should park surplus cash and earn a yield on it. The problem is what other income does to the headline. PAT — profit after tax — lumps operating profit and other income into one number. So a business whose core operations are stagnant, or actively deteriorating, can still report rising PAT because its treasury earned more or it booked a one-off gain. The screener shows growth. The business has none.

Profit quality is the question hiding underneath: of every rupee of profit, how much came from the thing the company actually does for a living?

How do you test whether other income is propping up PAT?

The single most useful check is a divergence test. Compare the growth in operating profit — the profit from the core business, before other income — against the growth in PAT.

Operating profit goes by a few names. EBIT (earnings before interest and tax) and EBITDA (the same, before depreciation and amortisation too) strip out the financing lines, so they isolate how the actual business performed — but only when other income is reported as a separate line below the operating block. Plain EBITDA does not automatically exclude non-operating income; that is what an adjusted EBITDA does. If you only have a screener handy, "operating profit" or "EBITDA" on the standardised P&L is usually close enough — just verify the line's definition first, because some screeners fold other income into the operating block.

Now line them up:

• If operating profit and PAT are both rising at similar rates, the business is genuinely growing. Clean.
• If PAT is rising while operating profit is flat or falling, something other than the business is pushing PAT up. That something is almost always other income.

The companion ratio is other income as a percentage of PBT (profit before tax). When that share creeps up year after year while core EBIT goes nowhere, profit quality is deteriorating even though the headline is improving. The headline says "growth." The composition says "the engine stalled and we are coasting on the battery."

A real decomposition: GMDC's record that wasn't

GMDC is a state-owned lignite and minerals miner. Across three years its reported PAT looks like a recovery story. Here is the same story decomposed, using full-year figures (each fiscal year is the sum of its four quarters as Inve parses them from the filings):

(Inve data, FY24–FY26. Consolidated FY26 filings match line for line: sales ₹2,653 cr, operating profit ₹443 cr, other income ₹947 cr, PAT ₹957 cr. Illustration of a P&L mechanic, not a view on the stock.)

PAT is up 60% over two years, from ₹598 crore to ₹957 crore — a "record profit" that would get applause on any screen. Now read across the FY26 row. Sales actually fell versus FY25. Operating profit didn't just stall; it dropped from ₹637 crore to ₹443 crore, a 30% decline. The operating business had its worst year of the three. Yet PAT hit its high. The entire contradiction sits in the other-income column, which leapt from ₹354 crore to ₹947 crore and went from being a third of PBT to three-quarters of it.

When other income is 75% of profit before tax, you are no longer looking at a mining company. You are looking at a treasury and a tax department with a mine attached.

What's the difference between recurring and one-off other income?

This is the distinction most quick analyses miss, and it is the one that matters. Not all other income is equal.

Recurring other income is the yield a company earns on its assets — interest on bank deposits and bonds, dividends from investments, lease rentals. GMDC sits on real cash; on the Q4 FY25 call the management put it plainly: "We have decent reserves in the range of Rs. 2,000 crore" (GMDC Q4 FY25 concall, May 2025). Interest on that is legitimate and repeatable — it does not vanish next quarter. Read it less as a quality flaw and more as a capital-allocation signal: it tells you the company is sitting on cash it is choosing to park rather than reinvest. The genuine quality flags lie elsewhere: one-off items dressed up as run-rate.

One-off other income is non-repeatable: profit on sale of a property or a subsidiary, an insurance settlement, a fair-value gain, the write-back of a provision or a tax credit. And this is exactly where GMDC's FY26 was made. The ₹583 crore other-income spike in Q2 FY26 was a ₹474 crore one-time gain from recognising accumulated GST input tax credit, triggered when the GST rate on lignite rose from 5% to 18% effective 22 September 2025 and removed an inverted duty structure (company disclosure, Q2 FY26). Strip that single credit and the quarter's "record" evaporates: profit before tax before the exceptional item was roughly ₹155 crore, down about 15% year on year, and analysts pencilled the adjusted bottom line at close to break-even or a small loss (company filings, Q2 FY26).

So the forensic move, in one sentence: take the other-income line, split it into recurring and one-off using the notes to accounts in the annual report, and ask what PAT would look like with the one-offs removed. A "record profit" that shrinks back to break-even once you strip a tax credit is not a record. It is an accounting event that happened to land in the same quarter as a business.

A homely way to see it

Picture a vegetable shop. Last year the owner sold ₹10 lakh of vegetables and pocketed ₹1 lakh. This year vegetable sales slipped to ₹9 lakh and the margin thinned, so the shop itself made less. But the municipality refunded a tax it had overcharged for years — a ₹3 lakh cheque, once, never again — and the owner banked some interest on his savings. He announces "record income, up 40%."

He is not lying. The bank statement is real. But if you are thinking of buying a share of that shop at a price based on this year's "record," you are paying for a refund cheque that is already cashed and a vegetable trade that is going backwards. The refund is GMDC's GST credit. The savings interest is its treasury. The vegetable trade is the mine. Only one of the three will still be there next year, and it is the one that shrank.

What did management actually deliver — and say?

Here is where a third force stacks onto the first two. The same year the headline hit a record, the core operating guidance was missed.

On the Q4 FY25 call, GMDC's management was candid about a shortfall: "We fell short of 10 million [tons of lignite], it was an ambitious target, on account of two factors beyond our control" — a mine safety incident and a land-acquisition delay (GMDC Q4 FY25 concall, May 2025). They then guided to "a growth of 10% to 15% in the existing lignite business from our four existing mines" for the year ahead. Inve's Promise Tracker logged that 10-million-ton production target — and as the FY26 numbers came in, marks it missed, with the longer-dated 15-million-ton ambition flagged delayed (Inve Promise Tracker, GMDC). The volume the business runs on did not grow the way it was guided to; sales fell.

Trace the incentives before you read any management commentary — don't ask the barber whether you need a haircut. A management whose operating volumes have slipped will, understandably, open the results with the number that looks best, and ₹466 crore of PAT looks a great deal better than a halved operating margin. The composition — that the ₹474 crore tax credit exceeded the whole year's profit growth, so the entire increase (and then some) was a non-recurring item — is the part that has to be asked for. It rarely leads the press release.

Stack the three forces on this one fiscal year and you see the whole lollapalooza at once: operating profit down 30%, a one-off tax credit carrying the headline to a "record," and the year's stated production guidance missed. Any one of those, alone, is a footnote. Together they describe a profit that the business did not earn.

Where this read could be wrong

The honest steelman: the GST rate change is permanent, not a one-quarter blip. From here on, GMDC's lignite carries 18% GST with full input-credit recovery instead of an inverted 5% structure that trapped credits on its purchases. So while the ₹474 crore catch-up credit is genuinely a one-off, the structural fix behind it may modestly help cash flows going forward — it is not pure accounting smoke. We have not modelled the post-change tax economics, and a five-year owner should. Equally, the operating weakness has real, named causes the management disclosed — a safety closure at the Rajpardi mine and a stalled Bhavnagar ramp-up — that could reverse if the new mines come on stream as planned. Mining is cyclical; one soft year is not a verdict on the franchise.

What none of that changes is the test itself. The ₹474 crore credit will not repeat next year, the operating margin halved this year, and anyone valuing the company on FY26's reported PAT is anchoring on a number the mine did not produce. The divergence test did its job: it told you to go look. The annual report's notes and the concall told you what you found.

How do you screen for this across a whole portfolio?

Decomposing one company's PAT by hand is an afternoon's work with the annual report and the notes to accounts. Doing it for 15–20 holdings, every results season — checking each one's other-income share, splitting recurring from one-off, and cross-referencing whether management delivered the operating guidance it gave — is not realistic by hand. It is the kind of repetitive forensic work that quietly gets skipped, which is precisely why these stories persist.

Inve's KPI Screener lets you line operating profit up against PAT across quarters, so a divergence — PAT climbing while EBIT falls — shows up at a glance rather than buried in a PDF. The screener flags the pattern; the concall transcript and the Promise Tracker answer the why: did the operating guidance actually land, or did a one-off carry the quarter while the core slipped?

For a deeper read on profit quality, the sibling check is cash: a profit that other income flatters is often also a profit that operating cash flow does not back. See Quality of Earnings: PAT vs Operating Cash Flow for that companion test — especially relevant when the "profit" is a tax credit that recognises an accounting entitlement rather than a cheque in the bank.

Frequently asked questions

PAT tells you the accountants added everything up. The composition of that PAT tells you whether the business actually earned it. When operating profit falls 30% and the headline still hits a record, the growth is coming from somewhere other than the mine — a tax desk, a treasury, a one-time cheque — and the headline is borrowing against a future that may not arrive.

So the owner's question, before you pay a growth multiple next results season: of this "record" profit, how much will still be here in the quarter after the one-off clears — and did the business management guided to actually show up? Inve's Promise Tracker keeps that record so you do not have to reconstruct it from memory.