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 Indian corporates' aggregate revenue grew 39 per cent on year in the Q1FY23 due to low base of the previous year, which had been impacted by the second wave of the pandemic, as also the price hikes witnessed across several sectors, ICRA said in a report.

Sectors like hotels, power, retail, and oil & gas, among others, reported significant QoQ growth in revenues in Q1 FY2023. However, a few other sectors like airlines, construction, capital goods, and iron & steel witnessed a sequential decline.

The sequential growth in revenues during the quarter was dismal at 1.5 per cent and the trends varied across sectors. Companies were, however, unable to realise the benefits of the revenue growth in its earnings performance, with the OPM contracting on both the YoY as well as the sequential basis during Q1 FY2023.

"Demand revival post the pandemic led to the sharp rally in prices of most commodities especially metals to multi-year highs during FY2022, exerting pressure on India Inc.'s margins. Prices of other commodities have also moved up over the past four-five quarters, and continued to act as headwinds to margins in Q1 FY2023. Consequently, the operating profit margin (OPM) contracted by 213 bps to 17.7 per cent during the quarter. While these have seen some softening over the recent months, they remain at elevated levels," said Kinjal Shah, Vice President & Co-Group Head, ICRA.

ICRA believes that the Q2 FY2023 performance of India Inc. would face similar constraints as supply chain issues are easing only gradually, while commodity-led headwinds continue, especially in the wake of the elevated crude oil prices, depreciation of the INR vis-a-vis US$ and the geo-political developments.

Further, the progress of monsoon will be critical to support demand recovery in rural markets, which have been subdued. The combined impact of these multiple factors on the credit metrics of India Inc remains to be seen.