(THE NEWSMAN OF INDIA.COM) Abul Hasan:
The Reserve Bank of India has recently released the performance data for the private corporate sector for the third quarter of 2024-25. This data, derived from the abridged quarterly financial results of 2,924 listed non-government, non-financial companies, presents a comprehensive overview of the sector’s performance, offering insights into sequential and annual growth comparisons. The report also includes data for Q3: 2023-24 and Q2: 2024-25, allowing for a detailed understanding of both year-on-year (y-o-y) and quarter-on-quarter (q-o-q) changes.

Sales Performance
In Q3: 2024-25, sales of listed private non-financial companies grew by 8.0%, showing a notable improvement from the 5.4% growth recorded in the previous quarter and the 5.5% growth seen in the same period a year ago. This acceleration indicates a positive trend for the sector, particularly in comparison to the previous quarter.

A deeper dive into the manufacturing sector reveals that sales growth for 1,675 listed private manufacturing companies improved significantly. Their sales growth stood at 7.7% in Q3: 2024-25, up from 3.3% in the previous quarter. The surge was largely driven by robust performance in the automobile, chemicals, food products, and electrical machinery sectors. However, industries such as petroleum, iron and steel, and cement experienced a contraction in sales on a year-on-year basis.

The information technology (IT) sector also demonstrated strong performance, with sales growing by 6.8% in Q3, an increase from 3.2% a year ago. Non-IT services companies exhibited remarkable growth as well, posting an 11.5% increase in sales for Q3: 2024-25. This growth, however, was slightly lower than the 12.9% growth recorded during the corresponding quarter of the previous year.

Expenditure Trends
In terms of expenditure, manufacturing companies saw an increase of 6.3% in raw material costs, which mirrored their sales growth during Q3. Staff costs, however, outpaced sales growth, rising by 9.5% during the same period. The staff cost increase for IT and non-IT services companies stood at 5.0% and 12.4%, respectively, indicating significant variance across sectors.

Interestingly, the staff cost to sales ratio moderated sequentially across all sectors. In manufacturing, the ratio stood at 5.7%, while IT companies maintained a much higher ratio of 47.9%. Non-IT services companies recorded a staff cost to sales ratio of 10.3%, reflecting differences in operational structures and workforce requirements across sectors.

Profitability and Pricing Power
Operating profit margins for listed non-financial companies showed a positive trend, increasing by 50 basis points to reach 16.2% during Q3: 2024-25. This improvement in profitability was broad-based, affecting several industries and suggesting that companies have managed to maintain pricing power amidst varying cost pressures. The ability to sustain or improve margins, despite rising costs, indicates an environment where demand and operational efficiencies have helped offset inflationary pressures.

Interest Expenses and Coverage
The interest coverage ratio (ICR), which measures a company’s ability to meet its interest obligations from earnings before interest and tax (EBIT), revealed some interesting sectoral differences. For manufacturing companies, the ICR moderated slightly to 7.6 during Q3: 2024-25, compared to 7.9 in the previous quarter. This suggests that while the manufacturing sector remains in a strong position to service its debt, the ability to cover interest expenses has slightly decreased.

On the other hand, the IT sector continues to exhibit an exceptionally high ICR, well above 40, indicating that these companies are in a very comfortable position in terms of servicing their debt. Non-IT services companies also saw a significant improvement, with their ICR exceeding 2 for the first time in 32 quarters. This marks a notable turnaround, indicating stronger earnings and improved financial stability for companies in this sector.

The private corporate sector in India has demonstrated resilience and growth during Q3: 2024-25, with significant improvements in sales, profitability, and the ability to manage costs. The manufacturing sector, driven by specific industries like automobiles and chemicals, has shown strong growth, while IT and non-IT services companies have also performed well, contributing to the overall positive outlook. Despite rising costs, particularly in staff expenses, companies have managed to maintain or increase their operating margins, reflecting efficient management of resources.

Furthermore, the positive trend in interest coverage ratios, particularly for non-IT services companies, signals a strengthening financial position across the sector. As India continues to recover from economic disruptions and inflationary pressures, the performance of the private corporate sector remains a crucial indicator of the overall health of the economy.

This robust performance across sectors offers a promising outlook for the remainder of the financial year, with expectations of continued growth, particularly in the manufacturing and services sectors. Companies will need to remain agile to navigate potential challenges, such as cost pressures and external economic conditions, but the data from Q3: 2024-25 suggests that the private corporate sector is on a solid footing as it heads into the final quarters of the year.