Corporate Sales Surge in Q1FY27, but Rising Input Costs Squeeze Bottom-Line Growth

MUMBAI: India’s private corporate sector entered the new fiscal year with robust revenue momentum, yet profitability remained under pressure as soaring input costs and tax obligations offset the gains from increased sales.

According to a recent analysis of listed non-financial companies conducted by the Reserve Bank of India (RBI), the corporate landscape experienced a sharp acceleration in revenue during the first quarter of FY27. Total sales climbed 19.4% year-on-year to reach Rs 21.6 lakh crore, a marked improvement compared to the 5.5% growth recorded in Q1FY26 and 13.9% in the preceding quarter (Q4FY26).

Despite this revenue surge, the growth in net profit lagged, rising by only 14.1% to Rs 2.3 lakh crore. This figure represents a deceleration from the 17.6% growth seen in the same period last year and the 27.1% jump observed in the final quarter of the previous fiscal year.

The Profitability Gap

While the bottom line faced headwinds, operating performance remained strong. Operating profit grew by 19.3%, signaling that companies maintained significant operational momentum. Industry experts attribute the divergence between strong operating profit and slower net profit growth to external factors, including supply-chain disruptions stemming from the conflict in West Asia, which have driven up the cost of raw materials and fuel.

The data reveals that total expenditure for these companies rose by 20.8% in Q1FY27. Specifically:

• Raw-material costs surged by 25.3%, accelerating significantly from 4.8% a year ago.
• Power and fuel expenses jumped 19.3%, a sharp reversal from the declines seen in the previous two quarters.
• Tax provisions saw the most significant hike, rising 26.3% year-on-year.

Conversely, interest expenses bucked the upward trend, declining 0.4%, providing a rare bright spot in the expenditure ledger.

Sectoral Resilience and Pricing Power

Despite the inflationary pressures, the sectoral outlook remains largely positive. The Information Technology (IT) sector saw sales growth accelerate to 14.8% from 9.9% in the previous quarter. Non-IT services, buoyed by strong performance in wholesale and retail trade, maintained double-digit growth at 19.7%.

Notably, there is evidence that companies are successfully exercising corporate sales growth through pricing power. Operating-profit growth for manufacturing firms jumped to 21.3%—more than double the growth rate of the previous quarter. The IT and non-IT services sectors also saw improved operating-profit margins of 19.9% and 12.7%, respectively.

Rising Labor Costs

Labor expenses also saw a steady uptick across the board. Staff costs in the manufacturing sector rose by 12.4%, while non-IT services and IT sectors recorded increases of 11.2% and 7.6%, respectively. While the share of staff costs relative to total sales increased for manufacturing and non-IT services, the IT sector successfully managed to reduce this ratio, reflecting ongoing efforts to optimize human capital efficiency amidst a challenging global economic environment.