India Inc’s revenue is expected to rise about 14% year-on-year for the quarter ended December 2022 to Rs 10.9 trillion, following a steady rise in volume and price hikes, and driven primarily by the consumer discretionary segments. On a sequential basis, revenue is seen up 0.9%, and profitability 140 basis points, according to Crisil.
Operating margins are likely to contract 270 basis points y-o-y, though slower than in the past two quarters — as easing commodity prices provided succour amid moderating revenue growth. However, this would mark the fifth quarter of y-o-y contraction.
On a sequential basis, however, operating margin would rise for the first time in six quarters to 18-19% in the third quarter from 17.2% in the quarter ended September. The number has been falling since touching 23.7% in the first quarter of last financial year. For the nine months to December 2022, revenue is seen up around 24% y-o-y, while margins likely contracted by about 400 basis points.
Of the 47 sectors tracked, about 20 are expected to outpace overall revenue growth in the third quarter, while three-fourths should see operating margin contracting on-year, according to Crisil MI&A Research’s analysis of over 300 companies—excluding financial services and oil and gas sectors.
“Revenue growth in the third-quarter growth would be driven by consumer discretionary items such as airlines and automobiles, while construction-linked ones such as steel, aluminium and some industrial commodities such as petrochemicals would under-perform,” said Hetal Gandhi, director (research), Crisil Market Intelligence and Analytics.
However, ITeS or the BPO services companies are expected to see contraction, with slowdown fears in the two largest markets abroad for Indian businesses — US and Europe. This will impact the exports of gems and jewellery, and textiles too as consumers in those geographies cut spending.
While revenue for airline services should ascend 41% y-o-y following a significant rise in passenger traffic and fares, for automobiles, it should drive past 22% on higher domestic volume and realisations for vehicle makers.
IT services is seen largely apace with the overall revenue trend, growing 13% y-o-y.
Revenue of construction-linked companies is seen up a fifth on a healthy rise in capex allocations by central and state governments for infrastructure build-outs, healthy growth in order book, and improved execution.
Of the 20 sectors expected to outpace on revenue growth, 10 should see a margin contraction and five marginal improvement. Companies are still not able to fully pass on higher commodity prices, said the ratings and research firm.
Operating margin in steel products is likely to have contracted more than 800 basis points on a y-o-y basis due to a 15-20% correction in flat steel realisations, and costlier iron ore and coking coal. Construction-linked sectors and industrial commodities would see a margin contraction of 500 basis points y-o-y, largely due to elevated input cost and inability to pass it on to customers. For cement makers, margin is seen contracting 230 basis points y-o-y due to higher input cost.
Margins of all major verticals are expected to contract y-o-y barring consumer discretionary, which should see a slight rise, and the consumer staple services.