Whalesbook
Private sector companies posted a 13.9% sales jump in the final quarter of FY26, driven by manufacturing and services. While revenue performance was strong, rising raw material costs continue to pressure profit margins, a key factor for investors to monitor.
What Happened
Private non-financial companies in India reported a strong finish to the 2026 fiscal year, with sales growth accelerating to 13.9% in the January-March quarter. This marks a clear improvement from the 10.1% growth recorded in the preceding quarter. The data, released by the Reserve Bank of India on Tuesday, highlights a recovery in demand across both the manufacturing and services industries.
Manufacturing and Services Growth
The manufacturing sector was a primary engine of this growth, delivering a 14.5% year-on-year rise in sales. This performance was notably supported by robust demand in the automobile, electrical machinery, and non-ferrous metal segments.
At the same time, the services sector also showed resilience. Information technology firms saw sales growth improve to 9.9% from 8.8% in the previous quarter. The non-IT services segment performed even more impressively, posting a 20.3% growth rate, which was largely driven by strength in wholesale and retail trade.
The Margin Test
While top-line growth (revenue) is clearly expanding, the data brings a note of caution regarding profitability. Manufacturing firms faced significant pressure from rising input costs, which climbed 18.3% during the quarter.
This trend pushed the raw material-to-sales ratio to 58.5%. Essentially, a larger portion of the revenue generated by manufacturing companies is being consumed by the cost of raw materials. As a direct result, operating profit growth for the manufacturing sector slowed down to 9.4%, compared to the 11.8% seen in the previous quarter. This suggests that while companies are selling more, they are finding it challenging to fully pass on higher costs to customers to protect their profit margins.
Debt Health
Despite the profit margin pressure, the data indicates that corporate balance sheets remain stable. The interest coverage ratio for manufacturing companies—a measure of a company's ability to pay interest on its debt—improved to 9.5 from 9.0 in the previous quarter. This suggests that even as companies navigate rising costs, their ability to service existing debt has not weakened.
What Investors Should Track
Investors may want to watch how individual companies within these sectors manage the ongoing input cost pressure. A key monitorable is pricing power: companies that can successfully raise prices to offset the 18.3% increase in raw material costs will likely be better positioned to protect their profit margins.
Additionally, shareholders should keep an eye on future quarterly updates to see if raw material prices stabilize. If input costs continue to rise faster than sales growth, it could continue to put a lid on profit growth, even if the revenue numbers look healthy.