India Inc is set to post a revenue growth slowdown of 6-8 per cent in the April-June period, registering the fourth straight quarter dip in the key number, because of the low realisations and high-base effect. According to a report by Crisil, revenue growth may print 200 basis points lower on a sequential basis, marking the first such decline in eight quarters. However it maintained that the operating profit margin is seen edging up to ~20 per cent as against 19.6 per cent in the first quarter of the last fiscal and 19.3 per cent in the fourth quarter. This, the rating agency said, is helped by easing commodity prices, especially crude oil.
Of the 47 sectors that Crisil tracks, it maintained that an analysis of over 300 companies (excluding those in the financial services and oil & gas sectors) indicated, 14 likely saw a fall in revenue while 15 may have logged slower sequential growth.
Performance across sectors
According to the Crisil report, revenue of aluminium manufacturers likely fell 14-16 per cent owing to an 18-20 per cent decline in international prices and a sedate growth in volumes. “Lower realisations and slowing global demand for metals and industrial commodities affected makers of aluminium, steel, ferro alloys and petrochemicals,” it said. Steel products, meanwhile, may have logged a 6-8 per cent revenue contraction, impacted by the high base of the previous fiscal and a drop in realisations, which offset volume growth. The power sector is likely to see 5 per cent revenue growth.
“Of the total on-year incremental revenue during the first quarter, nearly 60 per cent would have been contributed by just three segments — investment-linked, export-linked, and consumer discretionary products and services,” said Aniket Dani, Director, CRISIL MI&A Research. Within these, he added, a majority of this rise is likely driven by the automobile and cement sectors. Also, export-linked sectors are seen posting a decline largely on the back of healthy growth in IT services and pharmaceuticals.
Automobiles sector likely grew 13-15 per cent and this growth is driven mainly by three sub-segments including commercial vehicles, passenger vehicles and two-wheelers. “Realisations are expected to be high as multiple price hikes of the previous quarters came into play and volume grew,” Crisil said.
The consumer discretionary products segment likely grew 13-15 per cent on-year, driven by 10-12 per cent growth in media and entertainment, 15-17 per cent growth in retail and 11-13 per cent improvement inhospitality.
Pharmaceuticals seem to record revenue growth of 12-14% on-year owing to strong domestic price growth, continued momentum in exports to regulated markets, and abating pricing pressure in the US.
IT services is seen clocking 16 per cent growth on-year on the back of cost optimisation, healthy digital solutions, cloud and automation capabilities, as well as a wide range of offerings.
“This fiscal should see an EBITDA margin benefiting from continued correction in commodities, including crude oil, the price of which fell a third during the first quarter. Apart from seasonal weakness, domestic prices of steel products and metals such as iron ore and aluminium have been easing because of subdued global demand and cheaper imports, which, too, supports profitability,” said Sehul Bhatt, Associate Director, CRISIL MI&A Research.
The report further stated that the operating margin of airlines and automobiles has likely expanded ~400 bps, power companies by around 150 bps, and FMCG by 100 bps. “While higher revenue helped pharmaceuticals and IT services improve their margin, tariff hike dialled up the number for telecoms. For the sugar sector, margin is seen up ~600 bps on the back of higher sugar and ethanol prices,” Crisil said.