Profit growth suggests biz cycle picking up, but weak links remain

The results of more than 2,000 listed companies in the fourth quarter (Q4) of 2024-25 indicate improvement in revenue and profit growth. Revenues were up 7.6 per cent year-on-year (Y-o-Y) compared to Q4FY24. Reported profit after tax (PAT) was up 12.7 per cent Y-o-Y and 15.7 per cent quarter-on-quarter (Q-o-Q), while PAT adjusted for one-offs was up 9 per cent Y-o-Y and 13 per cent Q-o-Q. Although the growth rate was not high, this pattern — where PAT growth was higher Q-o-Q than Y-o-Y — can signal a change in the business cycle. Once the volatile petroleum and banking & finance, which recorded moderate performances, are excluded, growth in revenues for other sectors aggregated 9.5 per cent Y-o-Y (7.1 per cent Q-o-Q) with operating profits increasing 18 per cent Y-o-Y and reported PAT 21.4 per cent Y-o-Y. After adjustment, PAT was up 15.4 per cent Y-o-Y and up 17.6 per cent Q-o-Q. Taxes paid rose 13.9 per cent Y-o-Y and Q-o-Q.

 

The oil sector was impacted by lower prices of crude oil and gas, with revenues increasing 0.9 per cent Y-o-Y, while operating profits grew just 1.5 per cent Y-o-Y and PAT was down 2 per cent. However, Q-o-Q PAT grew 19 per cent, which is a sign that refiners profited from better refining margins and a drop in crude oil/gas prices in Q4FY25. Banks saw an 8.8 per cent Y-o-Y rise in income, and after absorbing a whopping 28 per cent increase in taxes, they reported 3.3 per cent PAT growth Y-o-Y. The positive impact of a falling interest-rate regime is not fully apparent yet. Auto ancillaries, capital goods, logistics, and pharmaceuticals crossed the 10 per cent Y-o-Y mark in revenue growth. Infrastructure and cement, which are closely related since the latter’s offtake depends on the former’s activity, both saw a Q-o-Q revenue jump of over 15 per cent, and both recorded respectable high single-digit Y-o-Y growth. 

 

Profit expansion was significant in capital goods (up 11 per cent Y-o-Y after one-offs, and up 22 per cent Q-o-Q) and adjusted PAT was up by a huge 95 per cent Y-o-Y in infrastructure and 32 per cent in logistics. Two core sectors are also worth mentioning along with cement and infrastructure. Power saw 7 per cent growth in revenues and 19.7 per cent growth in adjusted profits. The pharmaceutical and information-technology (IT) sectors are flagships of India’s trade. Pharmaceutical revenues were up 13 per cent Y-o-Y with PAT adjusted for one-offs up by 61 per cent. The concerns here are mostly related to the tariff war. IT saw 8.5 per cent revenue gains, and PAT gains of just 4.6 per cent. Margin compression is a big concern because the industry transitions to a future where artificial intelligence, visa concerns, and changing business paradigms loom large.

 

The fast-moving consumer goods (FMCG) industry saw just 7.7 per cent Y-o-Y revenue growth and 5 per cent growth in adjusted PAT. Again there was margin compression — partly due to intense competition and partly due to high raw material costs. The automobile industry saw marginal profit growth if Tata Motors, which has very volatile results due to JLR, was excluded. Including JLR results would lead to a 24 per cent Y-o-Y fall in PAT. Two-wheelers did much better than four-wheelers. Taking a broad view, the Q-o-Q acceleration could mean the business cycle is shifting into higher gear. Results in areas like FMCG and automobiles indicated that consumption was not very strong. On the global front, obvious concerns remain. Nevertheless there are signs of hope.