Q1 early-bird results: Revenue, profit performance worst in 16 quarters

Q1 results indicator: One-time gains boost overall income

The early-bird results for the April–June 2025 quarter (Q1FY26) suggest a further weakening in demand in the economy, with India Inc increasingly depending on other and non-core income to drive profitability.

 

Net sales (gross interest income for banks) of early-bird companies grew at their slowest pace in at least 16 quarters. Revenue slowdown, coupled with faster growth in operating expenses like employee costs and overheads, hit the bottom line. The combined profit before tax (PBT), excluding other income, contracted 10.3 per cent year-on-year (Y-o-Y) in Q1FY26, their worst showing since the Covid-19 pandemic. 

 

However, overall earnings were boosted by a sharp surge in other income and one-time gains, such as profits from sales of assets. Their  core earnings in Q1 remained under pressure despite gains from lower commodity and energy prices that helped expand margins during the quarter. Raw material costs for companies, excluding banks, were down 10.1 per cent Y-o-Y in Q1FY26.  

 

Ebitda (earnings before interest, taxes, depreciation, and amortisation) margins grew 130 basis points to a 14-quarter high.

 

The combined other income, including one-time gains, jumped 65.6 per cent Y-o-Y to around ₹73,000 crore in Q1FY26, accounting for 50.3 per cent of the companies’ PBT during the quarter, the highest since Q1FY22, when the ratio had shot up due to earnings decline from the Covid-19 lockdown.

 

Reliance Industries (RIL) and HDFC Bank — both part of the early-bird sample — gained the most from a surge in other income during the quarter. While RIL made a one-time gain of ₹8,924 crore from selling a 4.9 per cent stake in Asian Paints, HDFC Bank earned ₹9,128 crore from the sale of its stake in HDB Financial Services in the latter’s initial public offer.

 

As a result, the combined net profit of 176 early-bird companies rose 21 per cent Y-o-Y to around ₹1.1 trillion during the quarter, up from around ₹91,371 crore a year ago and around ₹1.05 trillion in Q4FY25. 

 

There was, however, a further slowdown in revenue growth. The combined net sales rose just 4.5 per cent Y-o-Y in Q1FY26, down from a growth of 10.7 per cent Y-o-Y in Q1FY25, marking the slowest pace in at least the last 16 quarters.

 

The early-bird sample is dominated by banks, RIL, and IT services, which together contributed 78 per cent of their net sales and 88 per cent of net profit in Q1FY26.

 

Revenue slowdown was across the board, with banks’ combined gross interest income up just 6.2 per cent Y-o-Y, growing at the slowest pace in the last 15 quarters.

 

For comparison, banks’ gross interest income was up 15.4 per cent Y-o-Y in Q1FY25, and it was up 9.2 per cent Y-o-Y in Q4FY25. The early-bird sample includes some of the country’s top banks such as HDFC Bank, ICICI Bank, Axis Bank, and Union Bank. 

 

Similarly, IT services companies’ combined net sales were up 3.4 per cent Y-o-Y in Q1, growing at the slowest pace in the past five quarters. For comparison, these companies’ combined net sales were up 3.7 per cent Y-o-Y in Q1FY25 and 5.4 per cent Y-o-Y in Q4FY25. With this, IT services companies have now reported single-digit revenue growth for eight consecutive quarters since Q2FY24.

 

RIL’s net sales were up 5.1 per cent Y-o-Y, down sharply from 11.7 per cent Y-o-Y growth a year ago and growing at the slowest pace in the last three years.

 

Banks and IT services also reported poor earnings in Q1FY26, thanks to faster growth in expenses compared to their revenues. While banks’ bottom lines were hit by faster growth in interest costs, IT companies suffered from faster growth in employee expenses.

 

The demand environment worsened during the quarter thanks to tariff and trade disruption caused by Trump tariffs. This is also visible in a sharp deceleration in banks’ credit growth during the quarter despite rate cuts by the Reserve Bank of India,” says Dhananjay Sinha, co-head of research and equity strategy at Systematix Institutional Equity.