India Inc reported revenue and PAT growth of 7 and 6 per cent year-on-year in the third quarter of FY25, per results of 1,435 companies announced till February 7.
But excluding the BFSI sector, the growth rate tapers to 6 and 4 per cent, respectively, YoY.
Consumption slowdown and higher input costs are evident across sectors. But, parallelly, high-end real estate, sale of SUVs, air-conditioners and pockets of premium FMCG continue to report strong growth.
Owing to a smaller share of the premium segment, the growth outlook still hinges on a strong agricultural season, capex revival, and higher spending spurred by lower taxes and interest rates.
Sectors in green
Among the top sectors, banks, IT, pharma and power generation delivered strong earnings growth.
Banks can take a respite that the issues in unsecured credit have so far been contained to this segment. Credit growth is now witnessing participation from the corporate and SME segments. But, overall, credit growth is slowing and that shows in the top line growth slowing to 12 per cent YoY.
Bank profits will face headwinds from lower yields with the recent rate cut. But with markets at a high, the low-cost deposits can be an offset and have shown a pickup this quarter according to SBI and ICICI Banks.
The IT industry had a mixed outlook. The deal environment is improving with large deals and discretionary spends beginning to show signs of pick up. But the revenue growth and guidance remain muted. The sector continues to trade at valuations unsupported by current earnings trajectory.
The pharma sector momentum continues unabated. India, the US and other markets have delivered strong growth. The trade generics threat needs monitoring, but larger field force seems to be an offset.
Demand, construction and transmission capacity additions with tailwinds from solar power and manufacturing is aiding the power sector.
In other sectors, realty and consumer durables have reported strong growth joined in by the chemicals segment. Chemicals have now reported two quarters of mid-teen earnings growth albeit on a weak base.
Sectors under cloud
Steel companies’ price realisations stabilised at the trough compared to last year. But this is partially offset by value-added products and larger expanded capacities. Higher cost of production, and competition from imports continue to impact bottom line growth.
Cement industry consolidation is now showing in UltraTech and Ambuja results, with revenue growth despite weaker realisations. The higher energy costs impacted bottom line though. Looking ahead some recovery is expected as coking coal costs abate. The recovery in government and private capex is most awaited by these two sectors.
FMCG, AUTO down
On the consumption side, FMCG and auto faced a second quarter of earnings degrowth. In the case of FMCG, the volume weakness is still attributed to urban-rural split with urban taking the fall this season compared to rural earlier. But Marico reported strong growth with its base in edible oils. Companies are also reporting downtrading with smaller pack SKUs. Pricey palm oil and a depreciating rupee impacted margins.
In the auto sector, the high base effect may have impacted growth. But SUV maker Mahindra & Mahindra reported strong growth this quarter. The two-wheeler segment is reporting strong volume growth with added tailwinds from electrification led by Bajaj Auto.
Refineries reported a 13 per cent YoY decline in earnings which points to a recovery around the corner (-50 per cent YoY average in the last three quarters). GrossRefining Margins are lower but recovering. Chemicals segment recovery is also a tailwind for refineries segment. Overall, the earnings outlook is supported by the cut in repo rate and lower taxation for consumers which should be a tailwind to consumer facing sectors. The government capex budget has been frozen but remains at a high ₹11-lakh crore. While the consumer and industrial tailwinds are positive, resumption of strong growth is in anticipatory mode.
