Sales cheer for India Inc, but recovery still uneven
Corporate India has shown signs of renewed energy in the financial year 2024-25. Listed private non-financial companies reported a commendable sales growth of 7.2%, an improvement from the previous year's modest 4.7%.
This surge in performance, highlighted by data from the Reserve Bank of India, is based on the financial statements of 3,902 listed non-government non-financial firms.
However, this recovery remains uneven, largely impacted by increasing input costs and tightening margins.
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A story of mixed results
The manufacturing sector experienced a sales increase of 6.0%, up from 3.5% the year prior. This improvement can be attributed to strong performances in key industries such as automobiles, electrical machinery, food and beverages and pharmaceuticals.
However, the growth in manufacturing was somewhat tempered by contractions in sectors like petroleum and metals, especially iron and steel. These declines can be linked to volatility in commodity prices and a slowdown in global demand.
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In contrast, the services sector displayed even more robust performance. Information technology firms reported a growth rate of 7.1%, up from 5.5% in the previous year.
More notably, non-IT services experienced double-digit growth, driven by thriving activities in telecom, logistics, and trade. This segment's resilience highlighted the adaptability of services amidst global economic uncertainties.
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Challenge of cost pressures
Despite the positive sales figures, cost pressures are a significant concern for businesses. Manufacturers faced a 6.6% increase in raw material costs, with the ratio of these costs to sales rising, indicating more challenging operating conditions ahead.
Staffing costs also escalated, with manufacturers seeing a 10% increase, IT firms 4.4%, and non-IT services experiencing a notable 12% rise. These wage pressures are occurring within a still-tight labour market, leading to squeezed profit margins.
Consequently, manufacturing firms reported a decline in their operating profit margins, dropping by 20 basis points to 14.2%.
As Corporate India navigates through these challenges, the interplay between growth and rising costs will be crucial for the sustainability of this recovery. The coming months will be pivotal in determining how businesses adapt to these economic pressures while striving for continued growth.
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