Private sector revenue growth accelerates in Q2, but rising costs pressure margins: RBI

Corporate India reported stronger sales momentum in the September quarter, with revenue across listed private non-financial companies rising 8% year-on-year, up from 5.5% in Q1, the Reserve Bank of India said in its latest corporate performance review.

The improvement was broad-based. Manufacturing firms posted 8.5% sales growth, supported by automobiles, chemicals, electrical machinery and food products. Non-IT services companies recorded the fastest expansion at 10.6%, driven primarily by wholesale and retail trade. IT companies reported steady revenue growth of 7.8%.

However, rising operating costs weighed on profitability. Raw material expenses for manufacturers grew 9%, pushing the share of input costs relative to sales higher. Wage bills also increased across sectors — 9.2% in manufacturing, 8.9% in non-IT services, and 6% in IT — though the IT sector improved efficiency, with staff costs forming a smaller share of sales than in the previous quarter.

Operating profit trends were mixed: manufacturing and IT firms saw profits grow 10.6% and 7.7% respectively, while profit growth in non-IT services moderated to 6.5%. Sequentially, only IT companies reported an improvement in operating margins.

Debt-servicing capacity also diverged. The interest coverage ratio weakened for manufacturing firms but remained broadly stable for services, with IT companies continuing to operate at relatively comfortable levels.

Overall, the report suggests that while demand conditions strengthened in Q2, companies faced tighter margin conditions, indicating that the recovery remains led by volumes rather than pricing power.