Revenue of Indian corporates is expected to grow by 8-10 per cent during the quarter ended September 2023, marking the first such improvement in the pace of growth after four quarters, according to a report by CRISIL. Revenue was up sequentially, too, by an estimated 150-200 basis points (bps), it said. CRISIL analysed more than 300 companies, excluding financial services and oil and gas sectors, to reach this conclusion. Of the 47 sectors CRISIL MI&A Research tracks, nine, accounting for more than 70 per cent of overall revenue, saw a pick-up in on-year growth.
The improvement in revenue growth would have been stronger had it not been for a decline in agri-linked sectors such as fertilisers, industrial commodities such as chlor-alkalis, petrochemicals and commodity chemicals, and aluminium, it said.
“Growth in revenue was largely skewed towards consumer discretionary products and services, where automobiles and the retail sector led the pack, and construction-linked sectors, where companies accrued benefits from an early deployment of capital expenditure by the roads and railways ministries. Truant monsoon proved to be a silver lining here as there were fewer interruptions in construction activity, thereby supporting volume growth even during a seasonally lean period,” said Aniket Dani, Director- Research, CRISIL Market Intelligence and Analytics.
Further, the report stated that the automobiles sector likely grew 12-14 per cent, driven by three sub-segments – commercial vehicles, passenger vehicles and two-wheelers. The growth was led by a 20-25 per cent pick-up in passenger vehicles due to healthy demand sentiment, supported by new model launches, supply-chain improvement and more variety in product portfolio. “The demand situation also gave elbow room for automakers to take multiple price hikes. Tractors remained sluggish, though, following an erratic monsoon, decline in rabi crop profitability and higher channel inventory,” it said.
Within the consumer discretionary products segment, it said, retail kept its momentum, growing 16-18 per cent, which was led by a 19-21 per cent growth in media and entertainment and around 20 per cent in the hospitality segment, comprising airline services and hotels, the consumer discretionary services vertical likely grew 13-15 per cent on-year.
The construction-linked segment, it added, was supported by the cement, steel products, roads and highways, and construction sectors. Cement companies likely recorded a 13-15 per cent growth backed by a 12-14 per cent volume growth over the year-ago quarter’s low base and lower impact of rains on construction activities thanks to El Nino. Steady domestic demand contributed to the 8-10 per cent growth in revenue of steel products. Volume expanded a significant 17-19 per cent during the quarter, as against just above 10 per cent in the first quarter, following higher offtake of long steel products for infrastructure projects. Muted global demand restricted export growth to 2-4 per cent.
Meanwhile, merchandise exports continued to be weighed down by weak global demand, essentials such as pharmaceuticals seem on course to register a 10-12 per cent on-year growth owing to strong domestic price growth, continued momentum in exports to regulated markets and abating pricing pressure in the US.
IT services, too, likely bucked the trend in exports by recording an 18-20 per cent growth because of deals led by increased focus on cost optimisation and consolidation. But soft global growth impacted the revenue of the aluminium industry, which contracted 12-14per cent. Global prices fell marginally and reflected in the premiums of major export destinations.
CRISIL further stated that prices of commodity chemicals saw downward pressure owing to China’s slow recovery and widespread destocking, resulting in a likely 10-12 per cent fall in revenue. Lower realisations amid muted demand also impacted revenue of cotton and synthetic textiles. For gems and jewellery, export demand remained weak amid modest purchasing power. However, operating profitability likely expanded by a smart 200-300 basis points on-year during the second quarter. Subsequently, overall Ebitda margin for ~350 companies is estimated at 20-22 per cent during the first half of this fiscal, up from around 18 per cent a year ago.
“Corporate India is expected to continue to benefit from easing input costs this fiscal which will offer further impetus to volume growth. Prices of key commodities such as crude oil and steel products have eased around 10 per cent, while aluminium prices have fallen 13 per cent so far. Power and freight costs have also come down. This, coupled with volume growth in the domestic market, will support operating profitability in the near term,” said Sehul Bhatt, Associate Director- Research, CRISIL Market Intelligence and Analytics.
Per the analysis by CRISIL, barring the construction sector, the top eight industries recorded an expansion in operating profitability on-year. The cement, steel products and aluminium industry gained the most with a 700-900 bps expansion in Ebitda margin. The telecom industry managed to clock a 150-200 bps improvement in profitability due to stable costs and higher realisations from tariff revisions and migration of customers to upgraded technologies. Further, easing commodity costs helped the automobile industry expand its margin 150-200 bps, while the pharma sector reaped benefits from moderation in costs of some active pharmaceutical ingredients.
Going forward, it said, revenue growth is likely to get a further augmentation because of the festive season-led demand for consumer discretionary products and services. However, it said that two factors can swing corporate performance in the second half — the monsoon leaning towards inadequacy which could impact the crucial rural demand and export demand which continues to remain on the tenterhooks. Against this backdrop, it said, favourable input costs may provide corporate India the much-needed respite.