Corporate revenue to rise 15% in Q2, profitability continues to fall; check best and worst performing sectors

Corporate revenue in India is expected to rise by 15 per cent on-year to reach Rs 10.2 lakh crore in the second quarter of this fiscal even as profitability is seen declining 300 basis points. Also for the whole of the fiscal, revenue is expected to grow 12-18 per cent on-year. An analysis of over 300 companies by CRISIL said that a combination of factors such as moderate price hikes and rising volumes is indicating the revenue increase. However, continued high commodity prices are pulling down the profitability.”Given a relative tapering of growth in the second quarter compared with the first, overall revenue growth for the first half of this fiscal is estimated to be ~25 per cent on-year,” said Hetal Gandhi, Director, CRISIL Research.

Sectoral performance

CRISIL tracked a total of 47 sectors, half of which have outpaced overall revenue growth during the quarter, with key ones within consumer discretionary services registering maximum on-year growth. “Almost 43 per cent of this incremental growth is seen to be contributed by consumer discretionary products and services on a low base of last year as well as price hikes, while metals added another 10 per cent to the incremental revenue,” Hetal Gandhi said.

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Consumer discretionary services, which accounted for 8 per cent of overall revenue, are estimated to have risen 35 per cent on-year since revenue more than doubled in airline services with a considerable increase in passenger traffic and also higher fares and also hotels due to increase in occupancy and higher room tariff. Revenue of IT firms is estimated to have risen 15-17 per cent on-year on the back of adoption of digital platforms across segments and also higher spending for modernisation. Further, consumer discretionary products which accounted for around 20 per cent of overall revenue, registered 25 per cent on-year growth. And the automobile sector contributed the maximum due to a healthy volume offtake, favourable product mix and also price hikes.

Meanwhile, the construction-linked vertical which accounted for 16 per cent of the overall revenue, grew 5 per cent on-year. In the vertical, steel products showed a degrowth of 3 per cent on-year, largely due to price correction of flat steel up to 15 per cent on-year.

Profitability down

Corporate profitability or earnings before interest, taxes, depreciation and amortisation (Ebitda) margin contracted ~300 basis points on-year in the second quarter. This marks the fourth consecutive quarter of on-year decline. The CRISIL analysis said that Ebitda margins of 70 per cent of the 47 sectors tracked by it shrunk on-year. “Rising revenue momentum is not translating into profit margin proportionately. Although key commodity prices such as coking coal and crude oil have cooled sequentially, they remain elevated on-year, eating into corporate profits, with absolute Ebitda profit remaining flattish during the quarter, both on-year as well sequentially,” said Sehul Bhatt, Associate Director, CRISIL Research.

While the consumer discretionary products saw increase in margin on-year, margins of all the other verticals including consumer staple services, and industrial commodities contracted on-year. In fact, the reduction in construction-linked sectors were at over 1000 bps on-year. For consumer discretionary products, what worked was the automobile segment following better utilisation, softening of metal prices, price hikes, and a favourable product mix.