Indian private sector shows broad-based improvement in Q4

25 Jun 2025 , 09:21 AM

RBI ANALYSIS OF PRIVATE SECTOR PAINTS A ROSY PICTURE

For the fourth quarter ended March 2025 (Q4FY25), the RBI conducted an elaborate survey of the performance of 2,936 non-financial companies. The spectrum of coverage was across manufacturing, IT, and non-IT services companies. The data has been compared with the sequential quarter and the year-ago quarter to get a good comparative perspective. Some very interesting observations emerge.

Despite global headwinds like the war in Ukraine, unrest in the Middle East, disruption of trade routes, and the reciprocal tariffs by Trump; the Indian private sector has done fairly well. Sales has growth at a steady rate, although this is more prominent for the domestic oriented businesses. Even the profit growth and the profit margins of Indian private sector have been robust, in the midst of these headwinds. Here is a quick dekko.

SALES GROWTH ROBUST, DESPITE URBAN DEMAND HEADWINDS

It was a quarter in which the rural demand did a lot better than urban demand and that impacted overall sales growth of Indian private sector.  Here are some quick findings.

• Sales of all listed private sector companies in India grew 7.1% yoy for Q4FY25. This is better than the year-ago quarter sales growth of 6.9%, but lower than the sequential third quarter of FY25, which saw sales growth of 8.0%.
• The picture is clearer when you look at the components of the private sector. If you just look at the private manufacturing companies, sales growth moderated sequentially from 7.7% to 6.6%.
• Within manufacturing, electrical machinery, chemicals, pharmaceuticals, and food products showed double-digit sales growth. However, the sales laggards were seen in the petroleum sector, which struggled amidst crude price volatility.
• On the services side, IT companies flattered with sales growth of 8.6% in Q4FY25. This was sharply higher than 6.8% growth in the sequential quarter and 3.1% in the year ago quarter. This is indicative of clear pick up in IT revenue momentum.

However, the real services thrust did not come from IT, but from other non-IT services like telecom, transport, logistics, and storage. Sales for Q4FY25 grew at a healthy 10.9%.

OPERATING PROFITS AND OPERATING MARGINS BETTER THAN EXPECTED

While raw material costs for manufacturers and staff costs for IT were higher; these costs remained constant as a share of sales. This helped margins. Here are some findings.

• When it comes to operating profits, both manufacturing companies and non-IT services performed exceedingly well. While manufacturing companies saw operating profit growth of 8.4% in Q4FY25, non-IT services grew by 18.4% yoy.
• However, operating profits of IT companies grew by just 2.4% yoy in Q4FY25. While the trend in It has been to leverage artificial intelligence to cut on staff costs, it is a much more gradual process for manpower-heavy Indian IT companies.
• What about operating margins (OPM). The OPM of manufacturing companies at 14.7% and the OPM of non-IT service companies at 23.0%, were at 8-quarter highs. However, the OPM of IT companies has been under pressure; falling from 23.2% to 21.3% on a sequential basis in Q4FY25.

Clearly, the manpower-heavy structure of IT companies is taking its toll on operating margins, even as manufacturing sector is gaining from falling WPI inflation.

FINAL WORD ON Q4 NUMBERS

One final word on the Q4 numbers. While IT has flattered on top line growth, it has faltered on profit growth and operating margins. Manufacturing has faced some pressure on top line due to weak urban demand. However, it has made up on operating margins due to lower costs. The real start of Q4FY25 has been the non-IT services space; which has seen robust growth in sales and also in OPM.

One thing to note about manufacturing companies is that they also witnessed a sequential improvement in the interest coverage ratio from 7.6X to 8.7X, largely on the back of higher profits and controlled debt accretion.