ICRA has predicted that India Inc’s sequential revenue growth in the first quarter (April-June) of FY2025 is expected to decline, attributed to reduced government spending and uncertainties surrounding the monsoon.

“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 the first half of FY2025,” ICRA said.

Despite the projected slowdown in revenue growth for India Inc in the first quarter of FY2025, ICRA anticipates that the operating profit margin (OPM) will stay steady within the 15-18 percent range. This stability is attributed to the expected steady raw material costs. Consequently, ICRA forecasts that the credit metrics of India Inc in Q1 FY2025 will largely remain stable, with the interest coverage ratio expected to range between 4.7 and 5.0 times, compared to 4.9 times in Q4 FY2024, as stated in its report.

“Evolution of the global economic scenario and the onset and intensity of the monsoons in India, would remain a key monitorable over the near term,” ICRA said.

Kinjal Shah, Senior Vice President & Co-Group Head – Corporate Ratings, ICRA Limited, said: “The 5.0 per cent YoY and 6.3 per cent sequential revenue growth for Corporate India in Q4 FY2024 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.”

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. “The 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,” Shah said.

Moreover, the concerns of the ongoing geopolitical tensions may adversely impact demand sentiments, especially for export-oriented sectors, he said.

ICRA’s analysis of the Q4 FY2024 performance of 558 listed companies (excluding financial sector entities) showed a year-on-year increase in operating profit margin (OPM) by 92 basis points to 17.2 percent. This improvement was largely due to lower commodity prices and gains from operating leverage. However, sequentially, ICRA noted that the OPM remained unchanged.

ICRA’s analysis of the Q4 FY2024 performance of 558 listed companies (excluding financial sector entities) showed a year-on-year increase in operating profit margin (OPM) by 92 basis points to 17.2 percent. This improvement was largely due to lower commodity prices and gains from operating leverage. However, sequentially, ICRA noted that the OPM remained unchanged.

According to ICRA, sectors such as auto, power, pharmaceuticals, and metals & mining showed year-on-year improvements in operating profit margins (OPM) due to gradual price increases and decreased input costs. Conversely, sectors like chemicals and fertilisers experienced a decline in OPM due to weak demand. Despite recent reductions in input costs, they remained elevated compared to historical levels, preventing India Inc. from returning to its previous highs of 18-19 percent OPM seen in FY2022.

ICRA noted that the interest coverage ratio of its sample set companies, adjusted for sectors with relatively low debt levels such as IT, FMCG, and pharma, saw a slight year-on-year improvement to 4.9 times in Q4 FY2024 from 4.8 times in Q4 FY2023. Given that the Monetary Policy Committee (MPC) has halted rate hikes since its April 2023 meeting, ICRA expects India Inc.’s interest coverage to remain generally stable in the near future.

ICRA reported that India Inc. saw a slight year-on-year increase in debt levels in FY2024. This rise was primarily observed in sectors such as gems and jewellery, construction, sugar, and chemicals, driven by higher working capital requirements. Despite these sector-specific variations in debt levels, India Inc. maintained largely stable credit metrics in recent times.

The improvement in earnings, supported by a recovery in demand across various sectors, helped mitigate any significant rise in the Total Debt to Operating Profit Before Interest, Tax, Depreciation, and Amortization (OPBITDA) ratio for India Inc. during FY2024. ICRA noted that this ratio stood at 3.3 times in FY2024, down from 3.7 times in FY2023, indicating a managed increase despite the higher debt levels observed in certain sectors.