Corporate India is estimated to have logged yet another quarter of moderation in revenue growth at 5-7% in the three months through June, the slowest in the past 15 quarters and the third straight quarter of moderation, our analysis of ~350 companies indicates. That compares with 6.7% growth for these companies in the January-March 2024 quarter.

The decline in growth was largely due to a drop in agriculture-linked sectors such as fertilisers, seasonal factors and the impact of the general elections on the construction-linked sector.

In the cement sector, revenue growth remained moderate on a high base of the year-ago quarter, and large and mid-sized players reeled under pricing pressure. For small companies, volumes were subdued due to lower market reach and a slowdown during elections. In steel products, too, while domestic demand was healthy, prices moved south, capping further improvement in revenue.

That said, 22 of the 47 sectors we tracked (excluding financial services and oil and gas) recorded sales growth higher than the 5-7% aggregate.

Says Aniket Dani, Director - Research, CRISIL Market Intelligence and Analytics, “Consumer discretionary and staple products and services, which together make up ~35% of our sample’s revenue, clocked growth in the quarter. Consumer discretionary products such as automobiles, organised retail, distillers & breweries, textiles, and consumer discretionary services such as media & entertainment and hotels clocked better growth. Exports grew steadily, backed by drug shortages and easing pricing pressure in the US, which propped up the pharma industry and a modest growth in the IT industry.”

Within the consumer discretionary products vertical, the automobile sector was driven by healthy growth in passenger vehicles on the back of higher volumes and last year’s price hikes. Tractors benefitted from expectations of a favourable monsoon and increase in MSPs. Two-wheeler sales also grew, backed by rural demand. For FMCG, recovery in rural India kept growth steady.

However, the pace of growth of consumer discretionary products, consumer discretionary services and consumer staple services verticals eased compared with the growth seen in the March quarter due to a seasonal dip in hotels following intense heatwaves and fewer wedding days, and subdued revenue in commercial vehicles.

Investment-linked sectors such as power, capital goods, ports and shipping also clocked strong growth. The power sector, which accounts for nearly 70% of revenue of this vertical, is estimated to have grown 12%, driven by prolonged and intense heatwaves across the nation during the quarter.

On the margin front, there was an estimated 50-70 basis points (bps) improvement in the quarter. Overall earnings before interest, tax, depreciation and amortisation (Ebitda) margin for the ~350 companies that continued to expand through fiscal 2024 likely grew close to 10% on-year in Q1FY25.

Of the top 10 sectors that contributed nearly three-fourths of the overall revenue, all but three logged margin expansion. The construction industry’s margins were primarily impacted by pressure on revenue, while the steel industry’s margin contracted a tad on-year and on-quarter due to a pick-up in iron ore prices, both globally and in the domestic market.

Conversely, easing international coal prices and better demand supported an on-year marginal improvement in power companies’ profitability. Large and mid-sized cement companies’ margins improved due to easing input costs. Small companies saw relatively higher expansion on a low base of last fiscal, where energy costs had skyrocketed, though lack of premiumisation and cost efficiency typically lead to lower margin gains. In the pharma sector, margins were supported by bulk-drug companies clocking a recovery in export demand and a slight uptick in realisations.

Says Arindam Pal, Associate Director - Research, CRISIL Market Intelligence and Analytics, “Going forward, corporate performance is expected to be supported by improved demand during the festive season, particularly after a likely good monsoon that would push up rural demand. Easing inflationary pressure will also support growth.”