India Inc to post tapered revenue growth in Q1FY25, says ICRA

India Inc’s sequential revenue growth is expected to taper in the first quarter of FY25. (Image/Reuters)

India Inc’s sequential revenue growth is expected to taper in the first quarter of FY25, stated a report by ICRA. While signs of a revival in rural demand have emerged, ICRA said that headwinds such as a slowdown in the Government of India’s (GoI) spending during the Parliamentary elections and onset of monsoon period are likely to weigh on growth in H1 FY2025. However, the operating profit margin (OPM) will remain steady in the range of 15-18 per cent, despite the expected tapering in revenue growth, as raw material costs are expected to remain steady.

This is estimated to keep the credit metrics of India Inc in Q1FY25 largely stable with the interest coverage ratio in the range of 4.7-5.0 times, against 4.9 times in Q4 FY2024.

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Kinjal Shah, Senior Vice President & Co-Group Head – Corporate Ratings, ICRA Limited, said, “The 5.0 per cent YoY and 6.3 per cent sequential revenue growth for Corporate India in Q4 FY2024 was supported by healthy demand in consumer-oriented sectors like airlines, hotels, automotive and FMCG. In addition, the growth in power and construction sectors was strong. The YoY revenue expansion was curtailed to an extent by a decline in realisation levels amid softening input costs (mainly raw materials), largely for sectors like fertilisers and chemicals, which also faced a demand slowdown due to channel inventory destocking.”

“The growth is expected to marginally slow down in Q1 FY2025 (on a QoQ basis), on a relatively high base, amidst a perceived temporary pause in the infrastructural activities for a major part of Q1 FY2025 due to the General Elections and the dependency of rural demand on the monsoon. Moreover, the concerns of the ongoing geopolitical tensions may adversely impact demand sentiments, especially for export-oriented sectors,” Kinjal Shah added.

ICRA analysed the Q4FY24 performance of 558 listed companies (excluding financial sector entities) to reveal that OPM is expected to improve by 92 bps to 17.2 per cent on a YoY basis. This was primarily aided by the softening in commodity prices and benefits of operating leverage. However, on a sequential basis, the OPM remained flat.

Sectors like auto, power, pharmaceuticals and metals & mining reported YoY improvement in OPM on the back of gradual price hikes undertaken and softening of input costs, however, some others like chemicals and fertilisers reported YoY contraction due to weak demand for these sectors. Even as the input costs softened in recent months, they remained higher compared to the historic levels, and accordingly, India Inc’s OPM is yet to revive to its historic highs (18-19 per cent seen in FY2022), ICRA stated.

In terms of debt levels, ICRA said that India Inc reported a marginal increase in debt levels in FY2024 on a YoY basis. The increase in debt levels were predominantly in sectors like gems and jewellery, construction, sugar, chemicals (due to increase in working capital requirements). Despite the variations in debt levels across sectors, India Inc reported largely stable credit metrics over the recent past, the report said.

Per the report, the indebtedness trends have been divergent across sectors, with five sectors – ferrous and non-ferrous metals, telecom, power, and oil and gas, accounting for around 69-70 per cent of ICRA’s sample set companies’ debt.