Q1FY26 results see better net margins and interest coverage

3 Sep 2025 , 01:03 PM

Q1FY26 RESULTS – GOOD NEWS AMID HEADWINDS

Over the last few months, there have been concerns that the global macro turmoil and the steep tariffs will hit quarterly numbers of India Inc. To be fair, the steep tariffs of 50% have become effectively only recently, so the full impact will be seen in the September and December quarters. However, there were concerns that Q1F26 (June quarter) would evince signs of pressure on topline and bottom line. Fortunately, there are no signs of panic, if you go by the comprehensive analysis of non-financial Q1 results done by the RBI.

Here are some quick findings. Indian manufacturing companies manged to grow sales at 5.3% yoy, despite sales being lower than the sequential quarter. For the non-IT services companies, Q1FY26 sales were up 7.5% yoy and was also marginally higher sequentially. What about IT companies? Despite concerns, IT has done fairly well.  Sales revenues were up 6.0% yoy and were also marginally higher on a sequential basis. Overall analysis is based on a sample of over 3,000 companies by the RBI, so it is fairly representative.

HOW MANUFACTURING COMPANIES PERFORMED IN Q1FY26

A total of 1,736 companies were evaluated by the RBI based on their Q1 results. Here are some quick findings about the performance of manufacturing companies in Q1FY26.

• Manufacturing companies have seen raw material costs and interest costs come down in Q1FY26, compared to the year-ago quarter. This broadly syncs with the sharp fall in WPI inflation that we have seen in the last few months (now in negative territory).
• In terms of profit performance of manufacturing companies; EBITDA margins at 17.9% is 90 bps above the year ago and sequential quarter. Even net profit margins at 11.1% are 190 bps above the year-ago quarter and 30 bps above the sequential quarter.
• Better profit performance has also improved the financial solvency ratios of manufacturing companies in Q1FY26. Interest coverage ratio is up from 7.9X to 9.1X on a yoy basis. The cash coverage ratio has also improved in tandem.

While sales growth of manufacturing companies may have disappointed on a sequential basis, lower costs have helped improve profitability and solvency ratios.

HOW THE NON-IT SERVICES COMPANIES PERFORMED IN Q1FY26

A total of 892 companies were evaluated by the RBI based on their Q1 results. Here are some quick findings about the performance of non-IT Services companies in Q1FY26.

• Non-IT Services companies have seen operating costs go up sharply, although interest and staff costs are flat to lower. This is largely in sync with the surge in the output of services in the June quarter, as evidenced by recent GDP data.
• In terms of profit performance of non-IT services companies; EBITDA margins at 26.2% is 150 bps above year ago quarter, but flat sequentially. However, net profit margins at 5.2% are 330 bps below the year-ago quarter and 390 bps below sequential quarter.
• Due to the tepid profit performance of non-IT service companies, the solvency ratios were largely flat. The interest coverage ratio at 2.1X and cash flow coverage at 3.5X are at par with previous quarters, thanks to lower interest burden this quarter.

Non-IT services companies have seen non-staff operating costs go up sharply in the quarter, leading to a dent in the profit performance of this sector.

HOW THE IT SERVICES COMPANIES PERFORMED IN Q1FY26

A total of 198 IT companies were evaluated by the RBI based on their Q1 results. Here are some quick findings about the performance of IT Services companies in Q1FY26.

• IT Services companies have seen a spike in staff costs compared to the year ago quarter and the sequential quarter. However, sales growth compensated for that. As a result, the yoy profit growth at 14.5% was one of the best reported in recent quarters.
• In terms of profit margins of IT services companies; EBITDA margins at 27.1% is 60 bps above year ago quarter and 40 bps up sequentially. Even the net profit margins at 18.2% are 70 bps above the year-ago quarter and the sequential quarter.
• For most IT companies, the interest cost is not more than 0.5%-0.6% of sales, so interest coverage is not exactly relevant. However, IT companies have the ratio of other income to net profits consistently above 30% in recent quarters.

IT services companies have managed staff costs rather well amid the changing dynamics of IT industry and the shift to AI/ML. That is evident in profit performance.