India Inc revenues rise 22% in Q1, but profit growth muted by oil weakness: ICRA

Aggregate revenues of a sample set of 838 listed companies rose 22% year-on-year in the first quarter, helped by resilient consumption and higher commodity and bullion prices, rating agency ICRA said on Thursday.

In its review of Q1 2026-27 earnings, ICRA said revenue growth accelerated from 13% in the preceding quarter, despite concerns over demand and cost pressures, the West Asia conflict and El Nino-related worries.

However, aggregate operating profit margin contracted by more than 200 basis points year-on-year and net profits remained largely flat, mainly due to weakness in the oil-refining sector, where elevated crude prices and under-recoveries on LPG and petroleum products weighed on profitability.

Excluding the oil and gas sector, operating profit margin remained stable at 19%, while net profits grew by more than 20% year-on-year, ICRA said.

"Though concerns over a demand-and-cost shock weighed on sentiments at the beginning of the quarter, the eventual impact was limited. Consumption-led sectors were among the key growth drivers," said Jitin Makkar, Senior Vice President and Group Head-Corporate Ratings at ICRA.

ICRA's sample set of 838 companies excludes financial sector entities and those with annual revenues of less than ₹50 crore.

Automobile original equipment manufacturers (OEMs) recorded the strongest revenue growth, while FMCG, consumer durables, apparel and grocery retail, jewellery retail and quick-service restaurants also reported healthy performance.

The automobile sector continued to benefit from the demand boost following GST rate cuts last year.

Passenger vehicle OEMs posted more than 25% year-on-year revenue growth in the quarter, even though their EBITDA margins contracted by around 200 basis points, primarily because companies absorbed part of the increase in raw material, energy, labour and freight costs.

ICRA expects auto companies could raise vehicle prices during the upcoming festive season, when demand may prove less price-sensitive.

On the other hand, several FMCG and electrical and electronics companies passed on most of their cost increases to customers, protecting margins.

The IT services sector remained a key weak spot, with constant-currency growth subdued amid cautious global technology spending. Revenue growth also lagged in domestic cyclical sectors such as cement and sugar and in export-oriented sectors including textiles and auto components.

Oil refining and aviation faced margin pressure from elevated and volatile crude prices.

A sharp depreciation of the Indian rupee against the US dollar also weighed on corporate credit profiles, with several companies reporting forex losses due to higher import costs and ineffective hedges, ICRA said.

The central government capital expenditure rose 24% year-on-year to ₹3.4 lakh crore in Q1, accounting for 28% of the full-year budgeted target.

Spending was focused on railways, defence and capital transfers to states, while new project announcements reached a multi-quarter high.

"Looking ahead, renewed geopolitical tensions in West Asia, the consequent volatility in crude oil and commodity prices, and an uncertain global trade environment will remain key monitorables," Makkar said.

"Nevertheless, healthy balance sheets and comfortable credit metrics of Indian corporates provide a meaningful cushion against potential earnings volatility and near-term external shocks," he added.