India's private corporate sector shows robust sales and profit growth in Q1 FY27, driven by manufacturing and IT. While business momentum improves, RBI data highlights risks from high input costs and global supply chain disruptions.
India's private corporate sector is entering the rest of FY27 on a stronger footing, with accelerating sales and operating profit growth pointing to improving business momentum. However, elevated input costs and global supply-chain disruptions are likely to remain key factors to watch as companies seek to sustain margins, according to data released by the Reserve Bank of India (RBI) on Thursday.
The RBI data, based on the abridged quarterly financial results of 3,247 listed non-government non-financial companies, showed aggregate sales growth accelerating to 19.4 per cent year-on-year in Q1 FY27 from 13.9 per cent in the previous quarter.
Sector-wise Performance
Manufacturing is emerging as a key driver of the recovery. Sales of 1,827 listed private manufacturing companies expanded 21.4 per cent year-on-year in the first quarter, up sharply from 14.5 per cent in the previous quarter. The acceleration was mainly driven by the automobile, petroleum and electrical machinery industries.
The IT sector also recorded stronger momentum, with sales growth rising to 14.8 per cent year-on-year from 9.9 per cent in the previous quarter. Non-IT services companies continued to post healthy double-digit growth of 19.7 per cent, although this was marginally lower than the 20.3 per cent recorded in the previous quarter, with wholesale and retail trade providing the main support.
Cost Pressures and Profitability
The improvement in revenues came despite considerable cost pressures. Raw material expenses of manufacturing companies surged 27.5 per cent year-on-year during Q1 FY27 amid global supply-chain disruptions. Nevertheless, the raw material-to-sales ratio declined marginally to 58.1 per cent from 58.5 per cent in the previous quarter, indicating that stronger sales growth helped partly absorb the higher costs.
Companies also demonstrated improved pricing and operating leverage. Manufacturing companies' operating profit growth jumped to 21.3 per cent year-on-year from 9.4 per cent in the previous quarter. IT and non-IT services companies recorded operating profit growth of 19.9 per cent and 12.7 per cent, respectively. Operating profit margins improved sequentially across all major sectors.
Improved Financial Health
Debt-servicing capacity improved as well. The interest coverage ratio of manufacturing companies rose to 10.2 in Q1 FY27, while that of non-IT services companies increased to 2.6, supported by a higher sequential rise in gross profits than interest expenses. IT companies continued to maintain an elevated interest coverage ratio.
Outlook
RBI's latest data indicate that corporate activity gained momentum at the start of FY27, with broad-based sales growth and stronger operating profitability providing a favourable base for the coming quarters. At the same time, the sharp increase in raw-material costs underscores the need for companies to maintain pricing power and cost discipline to sustain earnings momentum. (ANI)
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