India Inc Q2 profit growth bounces into double digits

ET Intelligence Group: Aggregate year-on-year net profit growth returned to double digits in the September quarter, as expected after a single-digit increase in the prior quarter.

With momentum strengthening, overall profit growth for a sample of 2,857 companies accelerated to a six-quarter high of 15.2%, helped by a lower base of 4.1% in the year-ago quarter and a double-digit advance by select companies in sectors including automobiles, cement, capital goods and oil and gas.

Revenue grew at a five-quarter high of 8.6% after dipping to a seven-quarter low of 6.4% in April-June. Revenue grew 7.7% in the year-ago quarter.


Overall performance is expected to be stronger in the December quarter amid festive cheer and the wedding season, which is likely to keep consumer demand buoyant. GST cuts that took effect from September 22 will also have fuller play. "The in-line quarterly performance was primarily driven by oil and gas companies," said Gautam Duggad of Motilal Oswal.

'Stronger-than-anticipated Recovery'
Fuel companies "reported a 41% year-on-year jump, metals (25% growth), cement (91%), capital goods (18%), and the telecom sector returned to profit from loss a year ago," said Duggad, institutional research head of Motilal Oswal Financial Services.

Vinit Bolinjkar, research head, Ventura Securities, pointed to broad-based growth with robust bottomline momentum from one out of every five companies in the BSE 500 index. "The diverse profit surge in the BSE 500 companies with 108 companies doubling their profits signals a stronger than anticipated recovery and sustained demand across sectors," he said.

According to Vinod Nair, research head, Geojit Investments, consumer segments like FMCG, staples, durables and discretionary lagged behind in growth, reflecting delayed festive spending and pending GST-related resolutions. "However, indications suggest a stronger December quarter for these companies," he said.

On a quarter-on-quarter basis, the ETIG sample's net profit fell by 2.5%, the second consecutive fall after reporting a 6.4% drop in the previous quarter, driven by seasonal weakness amid early onset of monsoon.

The sample's operating margin remained flat year-on-year at 17.9% while contracting by 190 basis points from the previous quarter. The year-on-year margin performance was sector specific.

"The pharma sector faced 1.5-2% margin compression due to export competitiveness, while cement, steel, and telecom reported margin expansion on higher realisations and better volumes," Bolinjkar said, adding that margin recovery will hinge on input price stabilisation and the companies' ability to either raise prices or improve operating efficiency.

The aggregate sample's performance was hit by muted growth reported by the lending sector during the quarter as interest rate cuts affected the pace of increase in net interest income. Excluding the banking and finance companies, the sample's revenue and net profit growth was 9% and 20.9%, respectively.

Analysts expect a better show in the December quarter.

"The third quarter is expected to maintain momentum due to festival and wedding season demand, while the full-year FY26 outlook remains robust," said Bolinjkar, highlighting that cost pressures and global uncertainties persist as risks.

Duggad said that the earnings cycle is bottoming out, with growth seen accelerating to double digits.

"Expected earnings acceleration should aid valuation expansion in the coming quarters," Duggad said. "Any supportive move on tariffs or improvement in the global macro backdrop could help sustain momentum."

According to Nair, the outlook for the December quarter is much better on a sequential basis, led by festival demand, a good monsoon, GST resolution and a reduction in inflation. "This positive outlook is expected to continue in Q4," Nair said. "However, it will also depend on the finalisation of the US-India trade deal, as a fall in export growth will moderate the overall performance."