India Inc records worst Q1 since COVID-19, profits decline 3%
What's the story
India's corporate sector has experienced a significant 3.1% decline in profits for the first quarter of FY25, marking its worst Q1 performance since the onset of the COVID-19 pandemic in FY21.
This downturn contrasts sharply with a substantial 31% profit increase recorded during the same period last year.
The data was revealed in a report by Bank of Baroda's economics department, which analyzed net sales and total expenditure figures for over 2,500 companies across various sectors.
Financial overview
Sales and expenditure figures reveal mixed performance
The report disclosed that net sales for 2,539 companies reached ₹22.9 lakh crore in the April-June quarter, marking a 5.2% increase from ₹21.7 lakh crore in Q1 FY24.
However, total expenditure also rose by 6.4%, hitting ₹19.6 lakh crore compared to ₹18.5 lakh crore in the previous year.
These figures indicate a mixed financial performance within India's corporate sector during this period.
Sectoral performance
Nifty 50 companies show profit growth despite overall decline
The report also examined the performance of India's top 50 companies represented in the Nifty.
It found that their post-tax profits rose by 4%, but this figure was negatively impacted by public sector oil marketing firms.
If these firms are excluded, the Nifty 50 posted a more robust earnings growth of 9%.
This suggests some sectors within India's corporate landscape have managed to weather the overall profit downturn more effectively than others.
Economic impact
Factors contributing to profit slowdown
Despite stable interest rates and lower input costs, India Inc has seen a slowdown in profit growth.
This underperformance is partly due to an unfavorable base effect, but the more worrying factor is the continued subdued sales growth which remains in single digits.
The overall profit slowdown has significant implications for the calculation of gross value added (GVA), prompting RBI to lower its GDP forecast for Q1 FY25 due to moderation in corporate profitability.
Industry insights
Sectoral sales and profit trends in Q1 FY25
The report also highlighted sector-specific trends. Sales in sectors like cement, iron, and steel were negatively impacted by heatwaves and general elections.
In contrast, consumer durables benefited from the heat, achieving their best quarterly sales.
FMCG firms reported a sequential sales growth and are expected to improve due to satisfactory monsoon progress.
For net profits, 20 sectors exceeded the average growth of 3.5%, but only 15 surpassed last year's profit growth including consumer durables and healthcare.