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Revenue growth for Indian companies on a sequential basis is expected to taper in Q1 FY25 because of headwinds including a slowdown in government spending due to the Lok Sabha elections but their operating profit margin (OPM) would remain steady in the range of 15-18% as raw material costs are expected to stay stable, according to credit rating agency ICRA. 

“The credit metrics of India Inc. in Q1 FY2025 are estimated to remain largely stable with the interest coverage ratio in the range of 4.7-5 times, against 4.9 times in Q4 FY24. Evolution of the global economic scenario and the onset and intensity of the monsoons in India, would remain a key monitorable over the near term,” ICRA said in a report.

Kinjal Shah, Senior Vice President & Co-Group Head, Corporate Ratings, ICRA Ltd. said, “The 5% YoY and 6.3% sequential revenue growth for Corporate India in Q4 FY24 was supported by healthy demand in consumer-oriented sectors like airlines, hotels, automotive and FMCG.” 

“In addition, the growth in power and construction sectors was strong. The YoY revenue expansion was curtailed to an extent by a decline in realisation levels amid softening input costs (mainly raw materials), largely for sectors like fertilisers and chemicals, which also faced a demand slowdown due to channel inventory destocking,” she said.

“Growth is expected to marginally slow down in Q1 FY25 (on a QoQ basis), on a relatively high base, amidst a perceived temporary pause in the infrastructural activities for a major part of Q1 FY25 due to the General Elections and the dependency of rural demand on the monsoon. Moreover, the concerns of the ongoing geopolitical tensions may adversely impact demand sentiments, especially for export-oriented sectors,” she added.

According to ICRA, India Inc. reported a marginal increase in debt levels in FY24 on a YoY basis. The increase in debt levels were predominantly in sectors like gems and jewellery, construction, sugar, chemicals due to increase in working capital requirements. 

“Despite the variations in debt levels across sectors, India Inc. reported largely stable credit metrics over the recent past. The improvement in earnings on the back of recovery in demand across sectors arrested any sharp increase in Total Debt/OPBITDA levels of India Inc. during FY24 (total debt/OPBITDA at 3.3 times in FY24, against 3.7 times in FY23),” it said.

“The indebtedness trends have been divergent across sectors, with five sectors – ferrous and non-ferrous metals, telecom, power, and oil and gas – accounting for 69-70% of ICRA’s sample set companies’ debt,” it added.

“Capacity expansion being undertaken in ferrous and non-ferrous metals as well as the power sector drove debt addition in Q4 FY24. Debt movement in the oil and gas sector was volatile, with working capital requirements changing in line with variations in crude prices, refining and marketing margins,” it further said.