India Inc Earnings Slow to 5.5% in Q1 FY26 as Manufacturing ICR Improves to 9.1

Mumbai, August 26, 2025 – India Inc reported a softer start to FY26 with aggregate sales growth moderating to 5.5% year-on-year in the June quarter, compared with 7.1% in the preceding quarter. Manufacturing and IT segments saw growth of 5.3% and 6.0%, respectively, while non-IT services expanded 7.5%. Profitability trends remained mixed across sectors, but debt-servicing capacity improved with the manufacturing interest coverage ratio rising to 9.1 from 8.7 in the previous quarter.

Growth Trends

Aggregate sales growth slowed sequentially, with petroleum overshadowing manufacturing performance and transportation and storage affecting non-IT services. IT services continued a relatively better momentum, albeit at a slower rate than in previous quarters.

Aggregate sales growth decelerated to 5.5% in Q1 FY26, from 7.1% in Q4 FY25 and 6.9% in Q1 FY25. Manufacturing sector growth slowed to 5.3% in Q1 FY26, from 6.6% in the last quarter. IT services growth was 6.0% in Q1 FY26, down from 8.6% in Q4 FY25. Non-IT services growth was 7.5% in Q1 FY26, slower than the double-digit growth of Q4 FY25.

Costs and Margins

Input prices provided some respite as raw material costs relaxed to 54.1% of sales in the manufacturing sector, from 55.2% in the previous quarter. Personnel costs, however, increased as a percentage of sales in all industries, evidence of wage stickiness amid slower topline expansion.

Raw material expenses in manufacturing were 54.1% of sales during Q1 FY26. This is compared to 55.2% during Q4 FY25, indicating a lower proportion. Staff cost to sales in manufacturing was 5.9% during Q1 FY26, which was higher than the previous quarter. Staff cost to sales in IT was 48.8% in Q1 FY26. It was higher than the last quarter. Staff cost to sales in non-IT services was 10.6% in Q1 FY26. It was higher than the previous quarter.

Manufacturing operating profit growth was 6.9% in Q1 FY26, weaker than previously. Operating profit growth in IT was 5.4% in Q1 FY26, improving. Operating profit growth for non-IT services was 11.3% in Q1 FY26, but eased. Operating margins remained stable in manufacturing, improved in IT, and weakened for non-IT services.

Balance Sheet Resilience

Debt servicing metrics improved, with the interest coverage ratio of manufacturing improving to 9.1 from 8.7. Non-IT and IT services also held high buffers. The interest cover in manufacturing strengthened to 9.1 in Q1 FY26 from 8.7 in Q4 FY25, indicating a better cushion. The interest coverage in IT remained high in both Q1 FY26 and Q4 FY25, indicating it was sustained. The interest coverage in non-IT services remained stable during both quarters, indicating a stable position.

Outlook

The moderation in growth in sales signifies a slow first half of FY26, although better leverage ratios assure a buffer. The market will be keeping a close eye on Q2 numbers to assess demand recovery, sector changes, and changing cost dynamics.

REF: https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR969A4892C991F0C4260AAAC626A2C336AD1.PDF

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