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The Gross Value Added (GVA) output--a measure of the total value created by the businesses--across the manufacturing and services sectors will maintain its momentum, following the notable improvement in profitability observed in the third quarter of the Financial Year 2025 (Q3FY25), according to a report by ICICI Bank.
"Taking into consideration the improved profitability, we expect GVA output for both manufacturing and services to pick-up in Q3," ICICI Bank Global Markets report added. In the third quarter, as per the report, manufacturing and services sector companies exhibited steady recovery in their profitability after a muted second quarter results. In Q3FY25, listed corporate firms' revenue growth picked up after a brief deceleration in the preceding quarter. Firms in the service sector, selected by the report, recorded faster topline growth (12.9 per cent YoY) compared to the manufacturing sector (4.4 per cent YoY). The manufacturing growth was largely driven by an increase in production volumes, although muted commodity prices held back topline growth, particularly for commodity-focused sectors, added the report. Manufacturers excluding refineries witnessed a faster pace of revenue expansion at 8.8 per cent YoY, with industries such as FMCG, chemicals, and electronics leading the charge. The manufacturing sector's revenues, excluding commodity-focused sectors, grew at a stronger 10.3 per cent, underlining the diversity of growth drivers within the industry. According to the report, this revenue growth was supported by increased production volumes. The report further added that manufacturing expenses grew by 4.9 per cent YoY, primarily due to the higher cost of raw materials, which make up about 72 per cent of total manufacturing expenses. On the other hand, the service sector saw notable contributions from telecom, information technology (IT), and real estate. However, the IT sector experienced a deceleration in sequential revenue growth, largely due to the uncertain geopolitical climate. As per the report, the Quick Service Restaurants (QSR) which faced a challenging quarter, is likely to perform well, as it will be benefited by the policy announcements by the government in the Union Budget. One of the most encouraging signs for the economy is the improved profitability across sectors. The services sector, in particular, demonstrated a slower growth in expenditures compared to revenue, contributing to higher profit margins. The combination of favorable revenue growth and controlled expenditure growth has paved the way for stronger profitability in Q3FY25, especially in the services industry, the report added. The report highlighted that the sectors tied to capital expenditure (capex) also experienced improved demand, spurred by higher government spending and a favorable climate. While consumption-related sectors had a strong festive season, the demand weakened post-festive season, reflecting broader economic challenges such as subdued wage growth. However, the overall revenue boost from capex and service sectors has offset the weaker demand in the consumption space, contributing to a positive outlook for corporate profitability, the report added. (ANI)
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