Revenue grows at fastest pace in eleven quarters; profit growth remains subdued

Experts said staples companies reported a partial recovery in the third quarter, particularly after stability following the GST transition

• Indian companies saw fastest revenue growth in 11 quarters in December quarter
• Profit growth remained low at 2% due to increased costs and one-off provisions.
• Rural demand remained resilient, urban demand showed early signs of improvement

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Indian companies showed early signs of a recovery in the three months ended 31 December, with revenue growth rising at its fastest pace in eleven quarters, even as profit growth remained subdued amid higher raw material and employee costs.

Aggregate net sales rose 11.4 percent year-on-year in the December quarter, according to a Moneycontrol analysis of 1,538 listed companies, marking the strongest expansion since the quarter ended March 2023. Profit growth during the quarter, however, remained muted at 2 percent year-on-year.

Sunny Agrawal of SBICap Securities said the acceleration in sales growth was driven by a consumption push following GST rationalisation, supported by volume growth in a muted inflation environment. He added that operating profit and profit after tax growth during the quarter were impacted by one-off provisions made by several companies related to changes in labour codes.

Cost pressures intensified during the period, with raw material expenses increasing 13.4 percent year-on-year and finished goods costs jumping 21 percent, the sharpest rise since data became available from March 2022. Employee costs advanced 11 percent, the fastest pace in eight quarters.

Vinit Bolinjkar, Head of Research at Ventura, said revenue resilience offers cautious optimism for an economic revival, but sustained profitability will depend on a combination of cost discipline and a pickup in demand. He added that prospective EU and US trade deals are expected to provide a meaningful boost to revenues and profitability in 2026.

Experts said staples companies reported a partial recovery in the third quarter, particularly after stability following the GST transition. Rural demand remained resilient, while urban demand also began to show early signs of improvement.

In the metals sector, ferrous companies reported largely in-line operating performance during the third quarter of FY26. EBITDA per tonne declined by about Rs1,000 to Rs1,500 quarter-on-quarter due to weaker net sales realisation, although healthy volume growth of 12 percent year-on-year and 6 percent quarter-on-quarter helped offset part of the pressure.

Information technology services companies, within the Motilal Oswal Financial Services universe, delivered better-than-expected earnings despite seasonally weak conditions in the third quarter of FY26. The sector reported median revenue growth of 1.7 percent quarter-on-quarter in constant currency terms.

Deepak Jasani of Independent Analysts said small-cap companies performed well, with improvements seen in both top-line and bottom-line numbers, while mid-cap companies reported results below expectations and large-cap companies delivered numbers broadly in line with estimates.

He added that operating margins came under pressure across sectors such as information technology, pharmaceuticals, power, airlines and construction, with the power sector impacted by rising raw material costs and increased competition from renewable energy producers. Jasani said cost control as a lever for margin expansion has largely run its course, as companies have already extracted most of the benefits from such measures over recent quarters.

Against this backdrop, Motilal Oswal Securities said in its latest note that it expects earnings growth of about 12 percent for the Nifty over FY25 to FY27. The brokerage said Nifty valuations at around 20 times forward earnings remain marginally below the long-period average of 20.9 times, while valuations in the broader market remain stretched.