India Inc is expected to report strong double-digit revenue growth in the June quarter, but profitability is likely to come under pressure as the Iran war disrupted supply chains and pushed up fuel, freight and raw material costs that companies were unable to fully pass on to consumers.
According to Crisil Intelligence, corporate revenue is likely to have grown 11-11.5% year-on-year in Q1FY27, the fastest pace in two years, driven largely by price hikes and partial cost pass-through. However, aggregate operating margins are estimated to have contracted by 75-100 basis points.
Pushan Sharma, Director at Crisil Intelligence, said companies faced mounting cost pressures as they exhausted lower-cost inventories and began procuring inputs at elevated prices. Industrial diesel, commercial LPG, freight, packaging and key feedstock costs rose sharply after the conflict began, squeezing margins, particularly in sectors with limited pricing power.
Companies with high exposure to crude oil, natural gas, imported inputs and logistics are expected to bear the brunt. Airlines are likely to report the steepest hit, with operating margins shrinking by about 1,000 basis points, while tyre makers could see a 200-300 basis point contraction due to higher natural rubber, carbon black and synthetic rubber prices.
Despite the cost pressures, demand remained resilient in several sectors. Crisil expects pharmaceutical companies to post around 12% revenue growth, while IT services firms are likely to report about 5% growth.
Yes Securities also expects India Inc to register a third straight quarter of double-digit revenue growth. Head of Research Shivaji Thapliyal said operating margins may contract by about 31 basis points in the June quarter but are likely to improve sequentially as companies complete price hikes and supply conditions normalise.
He expects net profit to grow 17% year-on-year, the highest in nine quarters, led by capital goods and metals, although gains could be offset by weaker profitability in automobiles and pharmaceuticals.
Elara Securities expects an even stronger 19% growth in sales, driven by automobiles and consumer discretionary companies. However, it forecasts a 4.9% decline in net profit due to losses at oil marketing companies. Excluding OMCs, earnings growth is projected at around 14%.
Analysts believe FY27 could be a tale of two halves, with the first half absorbing the impact of higher input costs and the second half benefiting from easing supply disruptions and better margin recovery, provided global conditions remain stable.