Indian Inc Reports 9% Top And Bottom-line Growth In Q1FY25
The indicators of corporate performance in Q1FY24-25 point to a moderation in sales growth of manufacturing companies in both nominal and real terms
The State Bank of India (SBI) in a recent report has said that Indian Inc. in Q1FY25 has registered both top-line and bottom-line growth of around 9 per cent as compared to Q1FY24. However, excluding banking, financial services and insurance (BFSI), corporates reported only 5 per cent growth in the top line with degrowth in earnings before interest, tax, depreciation, amortisation (EBIDTA) of -1 per cent in Q1FY25 as compared to growth of 23 per cent in Q1FY24.
The report added that the corporate gross value added (GVA) grew by around 10.9 per cent in Q1FY25 as compared to 17 per cent in Q4FY24 and 26 per cent in Q3FY24. During Q1FY25, the aggregate EBIDTA margin also fell by around 100 bps to 14.97 in Q1FY25 for the said set of ex-BFSI corporates.
Notably, the indicators of corporate performance in Q1FY24-25 point to a moderation in sales growth of manufacturing companies in both nominal and real terms, although excluding the petroleum sector, a better outturn emerges
SBI added that the staff costs inched up in the manufacturing sector but debt servicing capability measured in terms of the interest coverage ratio remained stable. "Against this backdrop, profit margins have declined and this will pull down manufacturing growth," according to the report.
India Inc. Facing Headwinds?
Earlier, ICICI Lombard Corporate India Risk Index (CIRI) 2023 stated that despite facing global headwinds and increased risk exposure in certain sectors, Indian enterprises have demonstrated resilience and strategic advancements, leading to improved risk management scores. According to the study, the BFSI sector showed significant improvements in cybersecurity measures but remained susceptible to global economic volatility.
Moody’s Ratings (Moody’s) in a report has said India Inc.’s large capex needs will still rely on offshore funding despite improving domestic liquidity and companies’ earnings growth. It stated that despite higher capex, Indian companies’ credit metrics will remain stable amid easing inflationary pressures and steady interest rates
“While India’s domestic liquidity and companies’ internal cash flow can largely cover their capital needs, offshore funding will remain key despite its share reducing to 12 per cent of India Inc’s total funding due to its higher costs and rising domestic liquidity,” said Vikash Halan, Managing Director (MD), Moody’s.
It considers that Indian corporates can incur additional debt to meet funding needs. Over the past decade, the corporate sector has steadily cut debt to 55 per cent of gross domestic product (GDP) from 72 per cent while leverage has remained stable.
Meanwhile, Icra noted that the Indian corporate sector saw steady business momentum in the fiscal year (FY) ended 31 March 2024, supported by both consumption and investment activity. Still, rural areas have so far faced subpar monsoons and inflationary trends that have dampened consumption. Conversely, urban-focused businesses such as residential real estate, hospitality, airlines, jewellery and automobiles have continued their robust momentum.
“Despite the likely higher debt, India Inc. will continue to report stable credit metrics due to stabilising inflationary pressures and a steady interest rate regime. The forecast of a normal monsoon season should support a nascent recovery in rural markets,” says K. Ravichandran, Chief Ratings Officer, Icra.
It expects the pace of private sector capex to be moderate in the first half of FY2025 due to the likely pause in infrastructure activities before the general elections. Over the near to medium term, however, private capex will ride on a general uptick in macroeconomic activity, as well as several supportive policy measures such as the Production Linked Incentive schemes.
The rating agency expects select sectors to face a stronger uplift in capex such as metals, specialty chemicals and automotive due to expansion plans and strong demand. Likewise, the regulatory push for a greener environment will spur investment in related infrastructure. Still, global macroeconomic risks pose challenges, especially for export-oriented sectors such as bulk chemicals, cut and polished diamonds, as well as textiles.
