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Non-financial companies in India reported an uptick in sales during the financial year 2025, but this was offset by rising costs that squeezed profit margins, according to a new analysis by CareEdge Ratings. The report shows that while the revenue trajectory improved, increased operational expenses significantly weighed on overall profitability.

According to the report, net sales of non-financial corporates rose 7.7 per cent year-on-year (YoY) in FY25, a notable increase from the 3.7 per cent YoY growth seen in the prior fiscal. However, total expenditure climbed by 8.1 per cent YoY, a sharp jump from the 1.8 per cent growth recorded in FY24.

"The sales growth of corporates improved in Q4 FY25. While sales growth saw improvement, an uptick in expenditure led by rising input prices has resulted in a moderation in corporate profitability growth in the quarter," the report stated.

Non-financial entities, as defined in the report, are businesses primarily engaged in goods and services production, excluding activities such as lending or investing.

Soaring Input And Service Costs Erode Margins

The cost of services and raw materials rose sharply by 9.9 per cent during the year, up from a mere 0.8 per cent in FY24, becoming a major contributor to the rising expenditure. While employee cost growth moderated to 7.2 per cent from 10.7 per cent in the previous year, it was not sufficient to cushion the broader cost surge.

"A strong recovery in consumption is also imperative for a pickup in private capital expenditure," the report observed. It also flagged concerns around the slowdown in employee cost growth, citing its potential impact on urban consumption trends.

Profit Growth Slows Across Metrics

The surge in costs led to a sharp decline in operating profit growth, which dropped to 6.4 per cent in FY25 from 15.3 per cent a year earlier. Reflecting a similar trend, profit after tax (PAT) growth also slowed to 6.4 per cent, compared to 14.5 per cent in FY24.

"This decline in operating performance has also translated into weaker bottom-line results," CareEdge added.

Outlook: Recovery Underway But Uneven

The report noted that although corporate profitability rebounded modestly in the second half of FY25—following disruptions earlier in the year due to election-related activities—the overall recovery remains fragile. The data suggests that close monitoring is essential as companies navigate an uncertain cost environment and patchy consumption trends going forward.