Private Sector Shows Positive Growth In Q3FY25; Driven By Sales And Profit Margins

The private corporate sector in India reported significant growth in various segments for the third quarter of the current financial year (Q3FY25), with key indicators pointing to a healthy economic outlook.

According to data released by the Reserve Bank of India (RBI) on Monday, the operating profit margin for listed non-financial companies improved by 50 basis points (bps), reaching 16.2%. This marks a positive shift from previous quarters, reflecting robust business performance.

Strong Sales Growth Across Sectors

Sales of listed private non-financial companies saw an increase of 8.0% during Q3FY25, a notable rise compared to 5.5% in the same quarter the previous year. This growth also outpaced the 5.4% increase recorded in Q2FY25. Within this sector, the manufacturing companies played a crucial role in driving the expansion. The sales of 1,675 listed private manufacturing companies grew by 7.7%, fueled by increased demand in the automobile, chemicals, food products, and electrical machinery industries. However, industries such as petroleum, iron and steel, and cement faced a decline in sales revenue.

IT companies also showed growth, with a 6.8% year-on-year (Y-o-Y) increase in sales. Non-IT services companies outperformed expectations with an impressive 11.5% Y-o-Y sales growth, continuing the strong performance seen in the previous year.

Rising Expenses Amid Growth

While sales growth was strong, manufacturing companies faced a rise in raw material expenses, which increased by 6.3% Y-o-Y in line with sales growth. Staff costs in these companies also saw a higher increase of 9.5%. IT and non-IT services companies experienced similar trends, with staff costs rising by 5.0% and 12.4%, respectively.

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Despite the increase in expenses, the staff cost to sales ratio in manufacturing, IT, and non-IT services companies showed improvement sequentially, indicating better operational efficiency.

Profitability And Interest Coverage Performance

The interest coverage ratio (ICR) for manufacturing companies showed a slight moderation, dropping to 7.6 during the quarter. On the other hand, IT companies maintained a strong ICR of over 40, indicating their continued profitability. Non-IT services companies also showed a solid performance with an ICR exceeding 2, demonstrating that their earnings more than doubled their interest payments.

Performance Of Non-Government Private Companies In FY24

The financial performance of non-government non-financial (NGNF) private limited companies saw an improvement during the 2023-24 financial year (FY24). Operating profit growth accelerated in both manufacturing and services sectors, leading to higher profit margins.

Net sales increased by 10.8% during FY24, following a remarkable 21.8% growth in the previous post-pandemic year. All major sectors, including mining, manufacturing, electricity, construction, and services, recorded low double-digit sales growth during the year, despite a slight normalization of activity levels.

Leverage remained stable, with the debt-to-equity ratio holding steady at 45.2%, while the interest coverage ratio improved from 2.7 to 3.1, indicating greater financial stability.

Positive Developments In NGNF Public Companies

Public limited companies under the NGNF category also experienced positive financial outcomes during FY24. Operating profits rose by 15.3%, driven largely by cost rationalization efforts. The services sector showed particularly strong growth, with a 38.1% increase in profit after tax (PAT), while manufacturing companies posted a 7.6% rise in PAT.

Operating expenses increased by a modest 3.4%, reflecting a slower pace of growth in both manufacturing costs and employee remuneration. This led to a moderation in leverage and an improvement in the interest coverage ratio, which rose to 4.1, with the manufacturing sector maintaining stability and the services sector showing slight improvement.

Conclusion: Optimistic Outlook For Private Sector Growth

The third-quarter results for Q3FY25 and the full financial year of FY24 highlight the resilience and positive momentum in India’s private corporate sector. With strong sales growth, improved profit margins, and greater operational efficiency, businesses are well-positioned for sustained growth in the coming quarters.

As leverage remains stable and interest coverage ratios improve, the private sector’s financial health appears solid, paving the way for continued economic contribution.