Corporate revenue is seen growing at the slowest pace in two years on account of slowdown in consumption which has adversely impacted automobiles and fast-moving consumer goods (FMCG) sectors, according to CRISIL.
Corporate revenue is seen growing at the slowest pace in two years on account of slowdown in consumption which has adversely impacted automobiles and fast-moving consumer goods (FMCG) sectors, according to CRISIL. The global brokerage house sees corporate revenue growing at 5-6% in Apr-Jun of FY 20 as compared with average revenue growth of 14-15% in the past four quarters. The estimate is based on CRISIL Research’s analysis of 295 companies excluding banking, financial services and insurance (BFSI) and oil sectors, which account for 60 per cent of the market capitalisation of the National Stock Exchange.
As automobiles sector is continuously reeling under demand slowdown due to higher costs, new axle norms and liquidity crunch, the other ancillary sectors such as auto components and tyres, have also been badly impacted. Tepid rural demand has weighed on the FMCG sector, which is expected to see moderate growth, according to CRISIL.
CRISIL expects further softening in prices of certain commodities which will lead to moderate growth in sectors such as steel, aluminium, natural gas and petrochemicals. “ A slower weakening of the rupee, at ~4% on-year compared with ~8% on average over fiscal 2019, is also expected to scrape some growth off key export-linked sectors such as information technology (IT) services. Revenue growth for the latter is expected to moderate to ~12% on year compared with the ~17% average growth rate over the past four quarters,” CRISIL said in a report.
However, CRISIL said the fall in revenue growth, is cushioned by better realisations in sectors such as airline services, cement, and sugar on account of price hikes. With the lower topline growth, India Inc may have to endure lower profitability at the operating level. Growth in operating profit, or EBITDA, is expected to be lower at 3% on-year as against 13% on average in the previous four quarters. Operating margin is seen contracting up to 50 basis points to 19.5% as topline shrinks, according to the brokerage house.
However, expected benign prices of most of the common commodities and crude oil on-year are likely to limit margin erosion as end-use sectors benefit from lower prices of raw materials, said CRISIL. It further added that the domestic prices of flat steel and aluminium are lower by around 5% and 15% respectively, while long steel prices will report only a marginal increase of 1% on-year in the first quarter. Besides that, softening of oil prices by 8% on-year will lend support to profitability for end-use sectors.