Cost cuts propel India Inc’s operating margins to multi-quarter highs in Q4FY25

India Inc delivered a robust performance on profitability in the fourth quarter of FY25, driven by aggressive cost rationalization and a favorable commodities environment, even as revenue growth remained tepid amid subdued demand. An analysis of 1,099 companies (including banks and financial institutions) reveals that operating profit surged nearly 15% year-on-year (YoY), starkly outpacing the modest 6.5% rise in revenue.

Key drivers of margin expansion:

1. Input cost relief: A benign commodities environment, particularly in metals and agricultural raw materials, eased input costs. Excluding banks and financials, input costs for companies dropped by 52 basis points—the sharpest decline in four quarters.
2. Wage moderation: Employee expenses grew at a muted 4.8% YoY, marking the fifth consecutive quarter of single-digit growth. This reflects corporate caution amid weak revenue visibility, though critics warn it risks perpetuating a demand slowdown.
3. Capex slowdown: Depreciation costs rose at the slowest pace in four years, signaling restrained private-sector capital expenditure. This aligns with ICRA’s observation of a “measured” capex cycle due to global uncertainties.
4. Expense discipline: Total expense growth for 923 companies hit a four-quarter low, with falling “other income” indicating tighter cash management focused on core operations.

Sectoral divergence:

• Auto and FMCG: Consumer-facing sectors like automobiles and fast-moving consumer goods (FMCG) struggled with volume growth. For instance, Nestlé and Hindustan Unilever reported stagnant sales despite festive demand.
• Industrial and energy: Firms like Hitachi Energy India capitalized on operational efficiency, posting a 62% YoY profit surge and doubling EBITDA margins to 12.3% through better product mix and cost controls.
• Aviation: IndiGo’s Q4 profit jumped 62% YoY to ₹3,067 crore, driven by fuel cost optimization and operational agility, though annual profits dipped due to rising expenses.

The demand conundrum

While cost cuts bolstered margins, weak revenue growth underscores persistent demand challenges. Urban consumption remained sluggish, with discretionary spending on big-ticket items like cars and real estate under pressure. Economists highlight a “vicious cycle” where stagnant wages suppress demand, further justifying corporate frugality. ICRA projects a mild recovery in urban demand, contingent on tax reliefs and monsoon outcomes.

Outlook

With global headwinds like trade tariffs and geopolitical tensions persisting, companies are likely to maintain cost discipline. However, sectors like renewables, electronics, and electric vehicles may buck the trend, aided by government incentives and energy transition investments.