India Inc’s operating profit margins likely to rise to 18.5% in Q1 FY26: ICRA report

India Inc’s operating profit margins likely to rise to 18.5% in Q1 FY26: ICRA report

India Inc’s operating profit margins are expected to rise by 10 to 40 basis points to 18.2–18.5% in the first quarter (April–June) of FY2026, continuing the sequential recovery seen over the past few quarters, according to a report released by rating agency ICRA on Monday.

“This, coupled with a moderation in interest costs due to the Reserve Bank of India’s recent cumulative repo rate cuts of 100 basis points, is expected to improve the interest coverage ratio for India Inc. to around 5.1–5.2 times in Q1 FY2026, compared to 5.0 times in Q4 FY2025,” the report stated.

Kinjal Shah, Senior Vice President at ICRA, noted, “Given the uncertain global environment, the private capital expenditure (capex) cycle is expected to remain measured. However, certain sunrise sectors such as electronics, semiconductors, and niche segments within the automotive space like electric vehicles will continue to attract investment, supported by the Government of India’s production-linked incentive (PLI) schemes.”

He further added that entities linked to Indian Railways and the Defence sector are likely to see their large order books translating into higher revenues and earnings.

ICRA’s analysis of 589 listed companies (excluding financial sector entities) for Q4 FY2025 revealed a 7.6% year-on-year revenue growth. This was driven by improved demand across consumption-oriented sectors such as consumer durables, retail, hotels, and airlines, as well as infrastructure-related sectors like power, real estate, and construction. In contrast, sectors such as iron and steel experienced a decline due to weaker global demand and an influx of cheaper imports from China.

India Inc is expected to post stable revenue growth in Q1 FY2026, supported by resilient domestic demand. Rural demand is projected to remain healthy, while urban demand is likely to recover, aided by income tax relief measures, easing food inflation, and lower EMIs.

However, ongoing geopolitical tensions continue to weigh on sentiment, particularly for export-oriented sectors such as agrochemicals, textiles, auto and auto components, cut and polished diamonds, and IT services.

In Q4 FY2025, India Inc recorded a 63-basis-point year-on-year increase in operating profit margins to 18.5%, marking the highest level since Q4 FY2022. This expansion was driven by improved operating leverage on the back of strong demand in sectors like power, airlines, and real estate, along with some moderation in input costs. Sequentially, margins improved by around 41 basis points during the quarter.

ICRA also observed that the interest coverage ratio of its sample set—adjusted to exclude sectors with relatively low debt levels such as IT, FMCG, and pharmaceuticals—improved on a year-on-year basis to 5.0 times in Q4 FY2025, up from 4.8 times in Q4 FY2024, owing to better profitability.

Furthermore, range-bound debt levels and improved profitability across industrial, capital goods, and construction sectors in FY2025 contributed to a stronger financial position, as reflected in improved gearing and better debt-to-operating profit ratios.