India Inc Reports Strongest Revenue Growth in Nine Quarters Amidst Squeezed Margins from Rising Costs

India Inc has demonstrated a robust revenue growth of 19.4% year-on-year for the June quarter, marking the strongest performance in at least nine quarters. This momentum is largely attributed to the strong showings in the auto, banking, metals, and pharma sectors. However, while net profit also experienced double-digit growth at 11%, it reflects the challenges posed by rising input costs, resulting in the slowest growth rate in profit observed over the past year. The upcoming festival and wedding seasons, coupled with an emphasis on product premiumisation, are anticipated to further bolster revenue momentum and enhance profitability in the near term.

A comprehensive analysis of 3,589 companies reveals consistent double-digit growth in revenue and net profit for the third and fourth consecutive quarters, with notable strength emanating from small and mid-cap firms. The Nifty 50 and Nifty 100 recorded earnings per share (EPS) growth of 11.0% and 8.3%, respectively, while the Midcap 150 and Smallcap 250 saw significantly higher growth rates of 34.0% and 36.4%. This divergence underscores the resilience and expansion of smaller firms amidst a competitive landscape.

Despite the positive earnings growth, the total sample’s operating margin contracted to 16.6% from 19.6% year-over-year, primarily due to heightened input cost inflation. Excluding the banking and finance sector, raw material costs relative to revenue surged to 38%—the highest level in at least 13 quarters. Analysts anticipate that while lower-cost inventory has tempered some effects of rising costs, this benefit is unlikely to persist in the forthcoming quarters, potentially leading to pressure on margins, especially as monsoon disruptions could impact select sectors.

Looking ahead, analysts project continued strength in key sectors such as banking, capital goods, healthcare, retail, and jewelry, while caution remains regarding automotive, cement, consumer goods, and oil and gas sectors. It is expected that overall earnings growth for the remainder of the fiscal year will improve, with projections of around 13% EPS growth for large caps and a more robust 18-20% for midcaps and smallcaps. Maintaining a selective strategy based on valuation metrics will be crucial as commodity price volatility and inflation trends emerge as significant considerations for future performance.

Source: The Economic Times

(Expert Note: This report was prepared by the Wealthova team.)