Corporate India Faces Revenue Slowdown In Q1 Amid Govt Spending Cuts, Monsoon: Icra

Corporate India is preparing for revenue uncertainties in the April-June period due to a slowdown in government spending and the onset of the annual monsoon season, according to domestic rating agency Icra. 

The sequential revenue growth, which saw a 6.5 per cent increase in the March quarter compared to the preceding December quarter, is expected to taper off significantly in the first quarter of the fiscal year.

Icra said that while signs of a revival in rural demand have begun to appear, several headwinds are likely to impede growth in the first half of FY25. These include a reduction in government spending during the Parliamentary elections and the seasonal impact of the monsoon period, which significantly influences rural demand. 

The agency's co-group head for corporate ratings, Kinjal Shah, stressed that the sequential revenue growth will slow down due to these factors, alongside a temporary pause in infrastructural activities for a major part of the quarter.

The ongoing geopolitical tensions are also a cause for concern, potentially dampening demand sentiments, particularly in export-oriented sectors. Despite these challenges, Icra expects the operating profit margin (OPM) to remain stable between 15-18 per cent, thanks to steady raw material costs. This stability in OPM is anticipated to help maintain largely stable credit metrics for companies.

In an analysis of 558 listed companies, Icra noted a year-on-year improvement in profit margins by 0.92 per cent in the March quarter, bringing them to 17.2 per cent. This improvement was driven by the softening of commodity prices and the benefits of operating leverage, although margins remained flat on a sequential basis. Additionally, the interest coverage ratio for companies, adjusted for sectors with relatively low debt levels such as IT, FMCG, and pharma, saw a slight improvement in the March quarter.

However, there was a marginal increase in debt levels as sectors like gems and jewellery, construction, sugar, and chemicals borrowed more to meet increased working capital requirements.