When profit after tax jumps, the first question should not be “How fast did profit grow?” It should be “What created the profit?”
Other income can contain perfectly legitimate earnings from cash, investments, rent, foreign exchange or asset sales. The problem begins when an investor treats every rupee in that line as though it came from the company's core operating engine and will recur at the same level every year.
A live example: Just Dial's Q1 FY27 numbers
Just Dial's NSE integrated filing for the quarter ended June 30, 2026 makes the issue unusually visible.
| Q1 FY27 standalone | Amount |
|---|---|
| Revenue from operations | ₹327.47 cr |
| Other income | ₹131.46 cr |
| Total income | ₹458.93 cr |
| Profit before tax | ₹206.59 cr |
| Profit after tax | ₹166.22 cr |
The note to the filing says other income included ₹117.78 crore of fair-value gain on financial instruments measured at FVTPL and ₹3.45 crore of profit on sale of investments. In other words, the composition of other income is essential to understanding the quarter; reading only revenue growth and PAT would hide a major part of the earnings story.
Two simple Credivant scale checks make this clearer. Other income represented about 28.6% of total income, while the fair-value gain alone represented about 89.6% of other income. These are not standard accounting ratios and should not be treated as valuation formulas; they are diagnostics that tell you whether the note deserves close attention.
Other income is not the same as low-quality income
It would be a mistake to conclude that a large other-income number is automatically bad. A cash-rich company can earn interest and investment income year after year, and those earnings belong to shareholders just as operating profits do.
The real distinction is between operating economics and the economics of assets sitting outside the operating business. If a company earns ₹100 crore manufacturing products and another ₹30 crore from a large treasury portfolio, both amounts are real, but they should not be analysed as though they have the same growth drivers, margins or repeatability.
A useful classification is:
| Component | How to think about it |
|---|---|
| Interest on surplus cash/fixed deposits | Can recur while the cash remains invested |
| Interest or income from treasury securities | Often recurring in some form, but sensitive to portfolio size and yields |
| Dividend income | Depends on investments and payout decisions |
| Fair-value gain through P&L | Can be volatile and can reverse |
| Profit on sale of investments | Realised, but transaction-dependent |
| Gain on sale of land/PPE | Usually non-core and infrequent |
| Liability/provision write-back | Requires understanding why the obligation changed |
| Foreign-exchange gain | Can reverse with currency movements |
The investor's job is to identify which bucket is carrying reported profit, not to label the entire line suspicious.
Contrast: Bajaj Auto shows why scale matters
Bajaj Auto provides a useful counter-example. Its FY26 standalone accounts reported revenue from operations of ₹58,732.48 crore and other income of ₹1,562.92 crore, which puts other income at roughly 2.66% of revenue from operations.
Its other-income note shows that ₹1,336.76 crore came from investment income, including interest income, dividend income and gains on valuation or realisation of mutual funds. That is a large rupee number, but it sits beside a far larger operating revenue base and a substantial treasury portfolio.
This illustrates why “other income rose” is not enough for a conclusion. Just Dial's Q1 FY27 other income was large relative to total income and heavily influenced by a fair-value gain; Bajaj Auto's FY26 other income was much smaller relative to operating revenue and was spread across several treasury-income components. The accounting line is the same, but the analytical meaning is different.
Fair-value gains deserve a separate mental bucket
Fair-value gains are particularly important because they can change reported profit without the underlying operating business selling more products or improving its margins. If an investment held at fair value through profit or loss rises in value, the gain can enter the income statement even though it is not operating revenue.
That does not make the gain fictitious. It does mean an investor should avoid extrapolating it at the same growth rate as the core business, because the next period can produce a smaller gain or even a loss.
For companies with material investment portfolios, compare at least three years of fair-value gains and losses rather than taking one strong quarter at face value. A volatile treasury result can create an equally volatile PAT series even when operating performance is comparatively stable.
Other income and exceptional items are different questions
Another common mistake is to treat “other income” and “exceptional item” as synonyms. Companies can classify unusual gains or costs differently depending on their nature and applicable accounting presentation, so both the face of the P&L and the notes need to be read.
Just Dial offers a useful illustration. Its Q1 FY27 filing says that for the year ended March 31, 2026 it had recognised a ₹21.08 crore one-time past-service cost relating to changes under the new labour-code framework as an exceptional item. The fair-value gains discussed above, by contrast, sat within other income.
For investors, the practical lesson is to search financial statements for both “other income” and “exceptional items”, then trace each material component to its note. A headline PAT number can be influenced by either side.
How to estimate sustainable earnings without inventing a new ratio
There is no universally accepted “other-income dependence ratio” that should be mechanically applied to every company. A better approach is to build a bridge from reported earnings to the part you believe is reasonably repeatable.
Start with reported profit before tax, identify clearly non-recurring or unusually volatile gains and costs, and then show the adjustments transparently. For example, an analyst might present “reported PBT”, “less: one-time asset-sale gain”, “less: unusually large fair-value gain” and “add back: one-time restructuring cost” to arrive at an analytical, normalised figure.
That number is not an accounting restatement and should never be presented as one. It is an investor estimate whose usefulness depends on the quality of the assumptions, which is why each adjustment should be linked back to the filing.
Cross-check the result with cash flow
Other-income analysis becomes much stronger when combined with cash flow. Some components generate cash immediately, some represent accrued interest, and some fair-value movements can affect profit without creating equivalent operating cash flow in the period.
If PAT is rising much faster than cash generated from operations, inspect receivables, working capital and non-operating income together. Credivant's profit up but cash flow down framework is designed for exactly that second-stage check, while the fake growth checklist connects the same issue with receivables, inventory and earnings quality.
The strongest warning is rarely one line item in isolation. It is a combination such as weak operating growth, a large non-core gain, stretched receivables and poor cash conversion.
A better way to read a sudden PAT jump
When quarterly profit surprises on the upside, compare revenue from operations, operating profit and PAT before doing anything else. If PAT is growing far faster, open the other-income and exceptional-item notes and identify the exact source of the difference.
Then ask whether the source is likely to repeat. Interest on a persistent ₹5,000 crore treasury pool is different from a land-sale gain; recurring treasury income is different from a mark-to-market gain that depends on asset prices; and a realised investment gain is different from growth in customer demand.
Finally, compare the adjusted picture with the company's valuation narrative. If the market is valuing the stock as a high-growth operating business while most incremental profit is coming from non-operating items, the distinction becomes much more important.
Frequently Asked Questions
Is other income bad for a company?
No. Interest, investment income and other non-operating earnings can be legitimate and valuable. Investors need to judge their scale, repeatability and relationship to the core business.
Are fair-value gains real profits?
They are accounting gains recognised under the applicable measurement rules, but they can be volatile and may reverse. They should therefore be separated from operating growth when estimating sustainable earnings.
Should other income be removed from valuation?
Not automatically. Recurring treasury income may have economic value, while one-off asset-sale gains or unusual fair-value movements may deserve a different treatment. The appropriate adjustment depends on what generated the income.
Bottom Line
“Other income” is not a red flag; unexamined other income is. The line can contain everything from recurring interest on surplus cash to a market-driven fair-value gain or a one-time asset sale, and those components should not be valued as though they have identical economics.
The practical discipline is simple: open the note, classify the components, measure their scale and rebuild the earnings story before extrapolating PAT. In financial analysis, where the profit came from often matters as much as how large the profit was.
Disclaimer: This article is for educational and informational purposes only. It is not investment advice or a recommendation to buy, sell or hold any security.
