Countering the slowdown

Comments 0
SummaryIndia Inc appears to be weathering the industrial slowdown by fiercely cutting costs to protect its profit margins.

India Inc appears to be weathering the industrial slowdown by fiercely cutting costs to protect its profit margins. Although industrial output growth may have bottomed out—it rose 8.2% y-o-y in October from 0.5% in Q2 and saw a decline of 0.2% y-o-y in Q1—consumer demand continues to be subdued. According to Crisil, sales of manufacturing firms across 28 sectors may grow by 11-13% y-o-y in Q3 of 2012-13, slightly faster than 11.8% in Q2 but slower than the 18.8% recorded in Q3 of the previous year. Volume growth in 17 out of 28 key sectors is expected to decline or grow in single-digits due to the economic slowdown. Weak consumer sentiments will keep demand subdued in two-wheelers, retail, textiles and housing. Delays in project clearances in the infrastructure sector will continue to crimp demand in capital goods, steel and cement.

However, Ebitda margins may inch up to 18.5-19% y-o-y during Q3 compared to 18.6% in Q2 and 18.5% in Q3 of 2011-12. Some of the sectors like sugar, tyres, cement and airlines may see a 250 basis points rise in Ebitda margins due to higher realisations arising from steady global oil prices coupled with the softening of other raw material prices like those of coal, rubber and cotton.

What’s more important is that stringent cost controls by corporates across sectors would further cushion margins in Q3.

Going forward, Crisil warns that margin expansion only on the back of increases in realisation, rupee depreciation and cost controls is not sustainable and an increase in volume growth is the need of the hour to improve profits.

Ads by Google

More from fe Edge

Reader´s Comments
| Post a Comment
Please Wait while comments are loading...