After two years of high growth, first from post-Covid topline recovery (FY22-23) and then from commodity cool-off (FY23-24), it was widely expected that India Inc would return to normalised growth patterns in FY25. The results of the first quarter do reflect this trend.

India Inc (1,440 companies excluding BFSI and power generation) reported a revenue and adjusted PAT growth of 6.7 per cent and 9.8 per cent YoY in Q1FY25. This trend is also reflected in the normative margin expansion for the same set, with gross and EBITDA margin expansion of 36/49 bps in Q1FY25.

The previous three quarters witnessed an average expansion of 217/160 bps in gross and EBITDA margins as commodity decline powered earnings growth. Without the helping hand of raw material cost deflation or a weak base, India Inc will have to rely on strong demand to translate into earnings growth to justify the high valuations.

Sectors with momentum

Banking, automobiles and pharma continued their momentum into Q1FY25.

Credit growth remained robust with SBI, for instance, reporting 15 per cent YoY growth in advances. Deposit growth has been lacklustre, but to sustain the higher net interest margins, this will be a key monitorable going forward. HDFC Bank will likely focus on deposit growth and not advances to balance its post-consolidation asset-liability mix. After higher risk weighting for unsecured credit, personal loan growth has slowed, but not fully halted. Corporate book will also be in focus to monitor private capex appetite and SBI has reported a 16 per cent YoY growth in this segment.

While the auto upcycle is expected to slow this year, the momentum of the last two years seems to continue in Q1, especially in segments such as utility vehicles and two-wheelers. To diversify from the domestic business, exports are gaining prominence; For example, Maruti’s new plant for exports is expected to ramp up after commercialisation this year and will provide an additional growth lever apart from improving the product mix focussed on UVs.

The pharmaceutical sector, which witnessed slow India growth and strong US expansion, is returning to all-round growth with price revisions happening in the domestic market.

The laggards

Refineries were the hardest hit in the quarter. The 54 per cent drop in adjusted PAT was driven by declining gross refining margins on top of a lower cost per barrel. The lower cost of chemicals for rest of the economy implies a lower realisation for refineries. Inventory gains may have shielded the decline as further pain may be in store. Steel and cement companies continue to face lower realisations, despite healthy demand outlook. Cement companies expect a price hike post-monsoon as the prices have been lower by 5 per cent from March. The recent consolidation in the industry and a spring in rural demand are expected to drive price recovery.

Steel companies are expecting a pass through of lower cost of coal and energy to improve margins. The pressure on steel realisations from Chinese imports needs global recovery to recoup. FMCG and IT reported a marginal recovery in profit growth this quarter. FMCG volume witnessed a recovery this quarter aided by the rural segment. HUL reported 4 per cent volume growth after several quarters with a turnaround (though tentative) in rural markets. With intense competition and value focus, price hikes from the sector will be back-end loaded.

The IT sector continued to report weak revenue growth in the quarter (4.9 per cent YoY), but adjusted PAT rose 9.7 per cent. The commentary on the sector outlook though continues to remain weak but with improved guidance.