Further, the recovery in the operating profit margins (OPM) for India Inc witnessed over the past quarter is likely to be sustained at expected 18.2-18.4 per cent, supported by increased demand and improved consumer sentiments. Coupled with lower interest costs, the recent repo rate cut will result in a marginal expansion in the interest coverage ratio for India to an estimated 4.6-4.7 times in Q4 FY25, against 4.5 times in Q3 FY25, ICRA said in a press release.
India Inc revenue growth is projected at 7-8 per cent in Q4 FY25, driven by rural demand recovery and increased government spending, despite global uncertainties.
Operating profit margins are expected at 18.2-18.4 per cent, supported by strong consumer sentiment.
Interest coverage is set to improve slightly.
Urban demand is likely to rise with tax relief and monetary easing.
Evolution of the global economic and political scenario, movement in foreign exchange rates, impact of the new US president’s policies, pick up in government spending and a revival in the domestic urban demand would remain the key monitorable over the near term.
Overall, ICRA expects the private capital expenditure (capex) cycle to remain measured in view of the uncertainties around geopolitical developments and relatively subdued outlook on merchandise exports from India.
ICRA analysed the performance of 602 listed companies (excluding financial sector entities) in Q3 FY25 revealing 6.8 per cent YoY revenue growth, supported by improved demand across consumption-oriented sectors like consumer durables, fast-moving consumer goods (FMCG), retail, hotels and airlines.
Sequential revenue growth remained modest at 3.5 per cent, driven by a persistent slowdown in urban demand, though some recovery was seen in Q3 due to the festive season. Additionally, ongoing geopolitical tensions continue to affect demand sentiment, particularly in export-oriented sectors like agrochemicals, textiles, automobiles and components, cut and polished diamonds, and IT services.
The corporate sector in India also reported a slight expansion in operating profit margin (OPM) in Q3 FY25, by 31 basis points (bps) to 18.1 per cent on a YoY basis on the back of increased revenues, coupled with some moderation in input costs. Moreover, on a sequential basis, the OPM improved by around 72 bps in Q3 FY25.
Meanwhile the input costs have softened in recent months, they remained elevated compared to the past levels, and accordingly, India Inc’s OPM is yet to revive to its historic highs (19 per cent seen in FY22).
The interest coverage ratio of ICRA’s sample set companies, adjusted for sectors with relatively low debt levels (IT, FMCG and pharmaceuticals), improved on a YoY basis to 4.5 times in Q3 FY25 from 4.3 times in Q3 FY24 due to increased profitability more than offsetting slightly higher interest outgo (due to a rise in debt levels).
“Rural demand is expected to be upbeat in the first half (H1) of calendar year (CY25), aided by the robust output for most kharif crops and the favourable outlook for the ongoing rabi season. Beyond that, a normal and well distributed monsoon in 2025 is crucial to support the agricultural outcomes. Further, after remaining sluggish over the last few quarters, urban demand is expected to improve, aided by the sizeable income-tax relief in the Union Budget 2025, the monetary easing by the Reserve Bank of India, and the expectations of a moderation in food inflation, which would augment discretionary consumption,” said Kinjal Shah, senior vice president and co-group head—corporate ratings, ICRA.
Fibre2Fashion News Desk (SG)