Indian Companies Post Nine-Quarter Revenue High Amid Margin Squeeze
India Inc achieved its strongest revenue growth in nine quarters during the June period, but surging raw material costs have compressed margins and tempered profit expansion, signaling a divergent earnings trajectory for the remainder of the fiscal year.
A broad sample of 3,589 Indian companies reported their strongest revenue expansion in nine quarters during the June period. However, net profit growth decelerated to 11 percent, marking the slowest expansion in a year despite remaining in double digits for a fourth consecutive quarter.
Operating expenses weighed heavily on companies outside the banking and finance sectors. Raw material costs relative to revenue surged to 38 percent, the highest level in at least 13 quarters and a sharp increase from 33.6 percent a year ago.
Vinod Nair, head of research at Geojit Investments, noted that "the June quarter margins remained under pressure due to elevated input costs though the impact was partially cushioned by the utilisation of lower-cost inventory." He warned this buffer will moderate in the September quarter as higher-cost inventory flows through profit and loss accounts.
Feroze Azeez, joint CEO of Anand Rathi Wealth, highlighted a divergence in market capitalizations. He pointed out that "the Nifty 50 and Nifty 100 delivered EPS (earnings per share) growth of 11.0% and 8.3%, respectively, while the Midcap 150 and Smallcap 250 reported significantly stronger growth of 34.0% and 36.4% in that order."
This uneven momentum suggests smaller enterprises are currently outpacing large-cap blue chips. Sector performance was equally fragmented, with banking, finance, capital goods, healthcare, retail and jewellery driving the aggregate results.
Without the lending sector to support the bottom line, aggregate net profit growth shrank to just 5.4 percent. This contraction was largely driven by fuel marketing losses and rising under-recoveries within the oil and gas segment.
Removing oil and gas from the sample improved net profit growth to a robust 20.9 percent. Azeez observed that "the strong performance of sectors including financials and capital markets suggests continued strength in credit growth, asset quality and market activity."
Looking ahead, corporate earnings will rely heavily on seasonal demand from upcoming festivals and wedding seasons to sustain revenue momentum. Analysts also point to a continued focus on product premiumisation as a mechanism to protect future profitability against input cost inflation.
Looking toward the rest of the fiscal year, global commodity price trends will act as the primary decisive factor for corporate profitability. Nair warned: "However, commodity price volatility, inflation trends and geopolitical developments remain key monitorable."
Azeez projects earnings per share growth of around 13 percent for large-cap companies in the current fiscal year, compared to 18 to 20 percent for mid and small-cap equities. He concluded: "Overall, we remain constructive on the earnings outlook, while maintaining a selective approach based on valuations and earnings across sectors and market-cap segments."
