Q2FY26 results see better sales growth, but tepid profit growth

28 Nov 2025 , 02:09 PM

Q2FY26 RESULTS – BLOW HOT AND BLOW COLD

The early indications from quarterly numbers showed a clear trend of improving sales in Q2FY26. As per the analysis of quarterly financial data by RBI, profit growth has not kept pace with the sales growth in the second quarter ended September 2025. For instance, the yoy sales growth in Q2FY26 at 8.0% was better than 5.4% in the year ago quarter and 5.5% in Q1FY26. If you look at the sequential growth in net sales between Q1FY26 and Q2FY26, the net sales are higher by 4.7%. This growth in sales was driven by a mix of higher production and also better pricing, amid robust demand.

A combination of low inflation, falling interest rates, construction demand, and GST cuts led to an increase in volume growth in the second quarter. That was evident in the robust growth in net sales in the quarter. However, while the value of output grew by 8.6% on yoy basis, the operating expenditure for the quarter also grew by 8.6%. As a result, the incremental gains on EBITDA profits and the net profits were limited. In fact, as we shall see later, the profits growth dwindled on a yoy basis as well as on a sequential basis. Let us now turn to the profit story for Q2FY26.

Q2FY26 RESULTS – PROFIT STORY, NOT SO ATTRACTIVE

While the sales growth in the quarter has been robust, the profit story is not all that attractive. For instance, the combined profits of non-financial private sector companies in India for Q2FY26 stands at ₹1,68,392 Crore. That is a growth of just 1.05% on a yoy basis, while it represents a drop of -11.1% in net profits on a sequential basis What explains such a sharp fall in the net profits. For that let us look at the base line profits first.

If you look at the earnings before interest, tax, depreciation, and amortization (EBITDA); then for Q2FY26 it is 5.4% higher on a yoy basis. This is lower than the sales growth as operating expenditure has grown at par with the value of output in the quarter. However, the EBITDA is actually down -1.6% on a sequential basis. Staff costs and raw material costs are sharply higher on a sequential basis. However, that still does not explain the sharp fall in net profits on a sequential basis. That is more due to the sharp fall in other income.

A QUICK LOOK AT SOME IMPORTANT RATIOS IN Q2FY26

Let us also look at some of the key ratios and how they have performed in Q2FY26. In terms of cost component ratios; raw material cost as percentage of operating expense is up by 200 bps in this quarter. However, staff costs and interest costs are almost flat in percentage terms. So, the pressure on operating profits is coming largely from higher raw material costs in Q2FY26.

Not surprisingly, the profitability ratios have weakened. The EBITDA to sales ratio at 18.9% is lower on a yoy basis and on sequential basis. The same is the case with the net profits margins, which has fallen to 9.2% in Q2FY26, after touching a high of 10.8% in Q1FY26. There is not much of a change in the solvency ratio like the interest coverage and cash coverage, which are almost at par.

LAST WORD – SOME SECTORAL TRENDS

Are there any broad sectoral trends visible? Let us look at sales growth. While the overall sales growth is healthy at 8.0% on yoy basis, there were discrepancies. For instance, manufacturing at 8.5% and non-IT services at 10.6% were the big sales growth drivers in Q2FY26. However, IT services dragged revenue growth at 7.8%, as order flows continued to be slow, and pricing stifled.

Let us turn to operating profit margins (OPM). While the overall OPM margin is healthy at 15.7% almost at par with year ago quarter and sequential quarter, there were again sectoral discrepancies. For instance, IT services showed the best OPM at 22.1% and non-IT services at 19.7% were the big OPM drivers in Q2FY26. However, manufacturing dragged OPM at 14.2%, as rising operating costs did pinch manufacturing. Overall, a good quarter for sales growth, but a rather disappointing quarter for profit growth.