Smaller Companies Outshine Big Corporations in Q2FY25 Sales Growth
Alayaran.com - The second quarter of fiscal year 2025 (Q2FY25) has seen a stark contrast in performance between India's corporate giants and their smaller counterparts. According to recent financial reports, large corporations have experienced a mere 3% year-on-year (y-o-y) increase in net sales for the September quarter, significantly underperforming compared to smaller companies.
This modest growth among the big players has pulled down the overall sales growth for a sample of 1,237 companies (excluding banks, financials, and oil marketing companies) to just 5% y-o-y, marking the slowest growth rate in at least four quarters.
The sluggish top-line growth has meant that operating profits for these larger entities only managed a 6% y-o-y increase. However, some relief in their bottom lines has come from controlled cost increases and a substantial boost from other income sources. Additionally, several companies have managed to turn a profit this quarter after reporting losses in Q2FY24.
In contrast, businesses with turnovers less than Rs 10,000 crore have shown robust growth, with a 10% y-o-y increase in net sales, the highest in the last four quarters.
Notable exceptions among the larger companies include Dr Reddy’s Laboratories, which saw a 16.5% y-o-y sales increase, and Larsen & Toubro, reporting a 21% y-o-y revenue growth. Mahindra & Mahindra also performed well, with a 13% y-o-y standalone net revenue growth, although this was largely due to price hikes rather than increased volume.
However, not all giants fared well. Tata Steel experienced a 3.2% y-o-y drop in consolidated sales, while Dalmia Bharat and Tata Chemicals saw declines of 2.1% and 0.8% respectively. Ashok Leyland reported a significant 9% y-o-y decrease in revenues due to reduced volumes. Hindustan Unilever managed only a 3% y-o-y growth, and Dabur India saw a 5% decrease, with Tata Power also reporting a 1% y-o-y revenue decline.
Consumer companies, in particular, have struggled to expand their top lines amidst slowing urban demand and a yet-to-recover rural market.
The operating profit growth across the sample of companies was only 6% y-o-y, the lowest in four quarters, following expansions of 14%, 11%, and 22% in the preceding quarters.
An analysis by Kotak Institutional Equities (KIE) highlighted over 50 top-tier companies whose earnings before interest, tax, depreciation, and amortization (EBITDA) in Q2FY25 fell short of expectations. Companies like Bajaj Auto, UltraTech Cement, Godrej Consumer Products, Polycab, Pidilite, Interglobe Aviation, ITC, Metro Brands, Avenue Supermarts, and Godrej Properties were among those listed.
This divergence in performance between small and large enterprises underscores the varying economic pressures and market dynamics currently at play in India Inc.