India Inc’s revenue growth estimated to slow down QoQ, operating margins to remain steady at 15-18% in Q1FY25: ICRA

The revenue growth of corporate India is expected to slow down sequentially in the first quarter of FY25, while the operating margin is likely to remain steady, according to ratings agency ICRA.

While signs of a revival in rural demand have emerged, 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, ICRA said in a release.

However, the operating profit margin (OPM) will remain steady in the range of 15-18%, despite the expected tapering in revenue growth, as raw material costs are expected to remain steady, it added.

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“The revenue 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,” said Kinjal Shah, Senior Vice President & Co-Group Head – Corporate Ratings, ICRA Limited.

The 5.0% YoY and 6.3% sequential revenue growth for Corporate India in Q4FY24 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, Shah noted.

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However, 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.

ICRA’s analysis of the Q4 results of 558 listed companies (excluding financial sector entities) revealed expectedly improved operating profit margins (OPM), increasing by 92 bps to 17.2% 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.

The interest coverage ratio of ICRA’s sample set companies, adjusted for sectors with relatively low debt levels (IT, FMCG and pharma), improved marginally on a YoY basis to 4.9 times in Q4FY24 from 4.8 times in Q4FY23.

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With the Monetary Policy Committee (MPC) having taken a pause on rate hikes since its April 2023 meeting, India Inc.’s interest coverage is expected to remain largely stable in the near term, ICRA said.

Meanwhile, the indebtedness trends have been divergent across sectors, with five sectors - ferrous and non-ferrous metals, telecom, power, and oil and gas - accounting for ~69-70% of ICRA’s sample set companies’ debt. Capacity expansion being undertaken in ferrous and non-ferrous metals as well as the power sector drove debt addition in Q4FY24.

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