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India Inc’s performance in the July–September quarter painted a mixed picture, with moderate revenue growth offset by shrinking profit margins, according to a report released by Crisil Research, a unit of the domestic rating agency. Crisil noted that corporate revenue is expected to have grown a modest 5–6 per cent on-year in the July–September quarter, following underwhelming performance of the power, coal, information technology (IT) services and steel sectors. The agency analysed the financial performance of 600 companies, revealing that the slower-growing sectors together accounted for nearly one-third of the total revenue base. Sequentially, the July–September revenue growth was estimated to be around one percentage point higher than the preceding quarter. Rising Costs and Competitive Pressures Erode Margins The report pointed out that companies struggled to fully pass on incremental costs in key segments like automobiles, pharmaceuticals, and aluminium, leading to an estimated 0.50–1 per cent decline in operating profit margins. Continuing geopolitical tensions further dampened prospects for IT services, where project deferrals likely limited revenue growth to just 1 per cent. In the steel industry, despite a 9 per cent rise in production volumes, revenue likely increased only 4 per cent due to lower steel prices. Meanwhile, the power sector’s performance remained muted, with revenue growth of merely 1 per cent, largely due to higher hydro and renewable energy output—the monsoon was 108 per cent of the long-period average—reducing demand for coal-based generation. Consequently, the coal sector’s revenue growth remained flat. Sectoral Bright Spots: Rural Demand and Infrastructure Crisil Intelligence’s director, Pushan Sharma, highlighted that “The rationalisation of goods and services tax rates created anticipation of new stock with lower prices, causing a temporary disruption in segments such as passenger vehicles and fast-moving consumer goods (FMCG). As a result, retailers and distributors delayed FMCG purchases, while high inventory levels and sluggish retail sales affected demand for passenger vehicles in Q2.” However, Sharma pointed to encouraging signs from rural India. “The rural economy got a boost from a copious monsoon, and farmer sentiment also improved after the government announcement of higher minimum support prices for kharif crops, which drove up sales of tractors and two-wheelers,” he said. Tractor makers saw revenue jump 36 per cent, driven by a 31 per cent increase in volumes, while two-wheeler sales rose 9 per cent on a 6 per cent volume gain. The cement sector also rebounded with 8 per cent revenue growth, aided by pre-festival demand and a low base, while the pharmaceutical industry expanded by 8 per cent thanks to strong export orders and stable domestic conditions. The telecom sector registered 7 per cent revenue growth, benefiting from higher realisations amid pricier subscription plans, despite stagnant subscriber growth. Margin Trends Differ Across Industries Crisil’s analysis indicated that profitability varied widely by sector. Automobile margins may have declined by 1.5–2 per cent, primarily due to an 11 per cent surge in aluminium prices. The aluminium industry itself likely saw 1–1.5 per cent margin compression because of weaker export realisations and declining regional premiums. Similarly, pharmaceutical margins were expected to have narrowed by 1.5–2 per cent amid pricing pressure and stiff competition in export markets. Conversely, the cement, steel, and telecom sectors likely managed to expand profit margins during the quarter, signalling selective resilience despite broader cost challenges. Overall, Crisil’s findings suggest that while India Inc managed steady top-line growth in Q2, rising input costs, uneven demand, and pricing pressures across critical sectors continue to weigh on profitability—a trend that could persist if global and domestic headwinds remain.
