Rating agency Crisil today painted a gloomy picture on the earnings front, saying India Inc would be reporting poor numbers yet again for the first quarter on soft commodity prices, weak growth and subdued rural demand.
“India Inc stares at another forgettable quarter… (the earnings will) disappoint as soft commodity prices, weak growth in investment-linked sectors and subdued rural demand restrict earnings,” Crisil said in a note.
An analysis of 600 companies (excluding financials and oil and gas), which account for 70 per cent of the market capitalisation, shows a likely 3 per cent uptick in revenues, the agency said.
However, compared on a sequential basis, this is a 2.3 percentage point increase over the March quarter’s 0.7 per cent revenue growth.
The pre-tax profits for the June quarter will be down 0.70 per cent, it said, which is a mild improvement from the March quarter when it was minus 1.7 per cent.
Revenue growth in the petrochemicals, steel, sugar and man-made fibre sectors will be the most impacted because of the low commodity prices, it said.
Cement companies are expected to have a weak quarter because of flat volumes.
In what can spell further trouble, it said the continued weak performance of investment-linked sectors and companies impacted by low global commodity prices will “curb even the moderate growth” anticipated in export-oriented and consumer-driven sectors.
Construction companies, Crisil said, may also report a 2-4 per cent uptick in revenues after three consecutive quarters of flat revenues.
“Export-oriented sectors and some domestic consumption-driven sectors like retail, FMCG, and media will be top line outperformers, with the former being partly aided by the recent weakness in the rupee,” Senior Director Prasad Koparkar said.
However, he added there are headwinds visible on this front too, with the merchandise exports growth struggling and weakness in rural demand.
The progress of monsoon in July and August will have a major influence on the revenue growth, he said, adding that pick-up in the pace of public investments and project execution can also help.
On the rural economy, the “fragile state” of consumption is reflected in volume and top line growth of companies heavily dependent on hinterland such as FMCG, tractors, and motorcycles, it said noting that the revenue growth in FMCG was just 7 per cent in the March quarter.
Director Ajay Srinivasan said steel, sugar, and pharma sectors will see a compression in margins because of the fall in realisations while for the IT sector, it will be a 0.90 per cent fall owing to lower utilisation levels and pressure on realisations.
There will be some positives from the telecom sector, though, with an expected 1.20 per cent upswing in pre-tax margins on a surge in data usage and capped operating expenses, the agency said.
Petrochemical players and road developers are also expected to post up to 4 percentage points expansion in their pre-tax margins.