What changed
Sales growth accelerated to 10.1% in FY26 from single-digit levels in FY24 and FY25, led by manufacturing (10.8% vs 6.0% in FY25). Raw material costs rose 12%, pushing the raw material-to-sales ratio to 57.6% from 55.7%. Operating profit margin for manufacturing fell 30 bps to 13.9%, while IT margins improved 50 bps to 22.4%.
What it means for you
Banks can expect stronger credit demand from manufacturing, especially automobiles, electrical machinery, food & beverages, and chemicals. However, rising input costs may pressure some borrowers' repayment capacity. The improved interest coverage ratio (ICR) for manufacturing (9.1 vs 7.9) signals better debt-servicing ability, reducing credit risk for lenders.
What you must do
- Review exposure to manufacturing sectors with high raw material cost sensitivity.
- Monitor ICR trends for non‑IT services companies, which remained flat at 2.2.
- Assess working capital needs for firms facing input cost inflation.
- Target lending to IT firms with improved margins and high ICR.
Who it affects
Banks with large corporate loan books, Manufacturing sector lenders, IT and non-IT services financiers, Credit risk teams
What drove the sales growth in FY26?
Manufacturing sector sales grew 10.8%, led by automobiles, electrical machinery, food & beverages, and chemicals. IT sales inched up to 7.9%, while non-IT services maintained double-digit growth.
How did input costs affect profitability?
Raw material expenses rose 12%, increasing the raw material-to-sales ratio to 57.6%. Operating profit margin for manufacturing fell 30 bps to 13.9%, but IT margins improved 50 bps to 22.4%.
What is the interest coverage ratio telling us?
Manufacturing ICR improved to 9.1 from 7.9, indicating stronger debt-servicing capacity. Non-IT services ICR stayed at 2.2, while IT firms remained at elevated levels.