Indian Q1 profits rise 14.5% as banks offset margin squeeze
India's largest companies posted a second straight quarter of double-digit profit growth in Q1, but surging raw material costs are eroding operating margins across the broader corporate sector.
A sample of 164 Indian companies reported a 14.5% year-on-year increase in net profit for the June quarter, marking a second consecutive quarter of double-digit earnings growth. Revenue rose 17.5%, the fastest top-line expansion in at least nine quarters. This acceleration compares favourably to the year-ago period, when revenue grew just 4.7% and profit increased 11.5%.
Beneath the robust headline growth, underlying profitability is facing measurable strain. The sample's aggregate operating margin contracted sharply to 20.9% from 26.9% in the corresponding period of the previous year. Excluding lenders, operating profitability fell to 14.7% from 17.3%.
The primary culprit for this margin compression is rising input costs, a direct consequence of ongoing geopolitical conflicts. For a truncated subset of the sample, raw material costs as a proportion of sales climbed to 33.3%, up significantly from 29.8% a year earlier. This inflationary drag indicates that a broad swath of the corporate sector is struggling to pass elevated costs entirely onto end consumers.
Furthermore, the aggregate profit figure was heavily diluted by the performance of a single conglomerate. Net profit at Reliance Industries, India's largest company by revenue and market capitalisation, fell 22.4% year-on-year to Rs 20,946 crore. This drop was entirely mechanical, driven by an exceptional gain of Rs 8,924 crore recorded in the prior year from the sale of its stake in Asian Paints. Excluding Reliance Industries from the calculations, the sample's net profit actually surged by 24.1%.
Financial institutions continue to anchor the broader earnings cycle, a trend widely expected to persist. "The overall earnings growth is anticipated to be healthy, anchored by financials, metals, and capital goods companies," Motilal Oswal Financial Services said in a preview report. Comprehensive clarity on these underlying financial trends will emerge as a wider array of sectors declare their quarterly results in the coming weeks.
