India Inc to see 7-8% revenue growth in Q4 FY2025 on rural demand, govt spending: ICRA

India Inc. is expected to post a 7-8% year-on-year (YoY) revenue growth in the fourth quarter of fiscal year 2025, supported by a recovery in rural demand and increased government spending, ratings agency ICRA said on Monday. However, global economic uncertainties, including trade tariffs, could weigh on growth, it added.

Operating profit margins (OPM) are projected to remain steady at around 18.2-18.4% in Q4 FY2025, driven by improved consumer sentiment and rising demand, ICRA said.

Lower interest costs, following a recent repo rate cut by the Reserve Bank of India (RBI), are expected to marginally boost India Inc.'s interest coverage ratio to about 4.6-4.7 times, up from 4.5 times in the previous quarter.

"Rural demand is expected to be upbeat in H1 CY2025, aided by the robust output for most kharif crops and the favourable outlook for the ongoing rabi season," said Kinjal Shah, Senior Vice President & Co-Group Head – Corporate Ratings at ICRA.

"After remaining sluggish over the last few quarters, urban demand is expected to improve, aided by the sizeable income-tax relief in the Union Budget 2025, the monetary easing by the Reserve Bank of India, and the expectations of a moderation in food inflation, which would augment discretionary consumption."

ICRA highlighted key factors that will influence India’s corporate growth trajectory in the near term, including global economic and political conditions, foreign exchange rate movements, US policy shifts, government spending trends, and the pace of urban demand recovery.

ICRA expects private capital expenditure (capex) to remain measured due to geopolitical uncertainties and a subdued outlook for merchandise exports. However, sectors such as electronics, semiconductors, and electric vehicles, supported by production-linked incentive (PLI) schemes, are likely to attract continued investments.

An analysis of Q3 FY2025 earnings from 602 listed companies (excluding financial firms) showed a 6.8% YoY revenue growth, driven by strong performance in consumer-oriented sectors such as consumer durables, FMCG, retail, hotels, and airlines. Meanwhile, commodity-driven sectors like iron and steel faced revenue declines due to weaker global demand and increased Chinese imports.

Corporate India reported a slight improvement in OPM in Q3 FY2025, rising 31 basis points YoY to 18.1%, helped by higher revenues and easing input costs. Metals and mining, fertilisers, pharmaceuticals, power, hotels, oil and gas, and chemicals saw YoY margin improvements due to better product mix and operating efficiencies.

However, the cement and tyre sectors experienced margin contractions due to higher input costs and weak urban demand. Airlines faced pressure from adverse foreign exchange movements.

While input costs have moderated in recent months, they remain above historical levels, and India Inc.'s OPM is yet to return to its FY2022 peak of 19%. ICRA's data showed that the interest coverage ratio for non-financial firms improved to 4.5 times in Q3 FY2025 from 4.3 times a year earlier, as profitability gains outweighed higher interest costs resulting from rising debt levels.