India Inc Q1 revenues may jump 8% to 2-yr high

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Mumbai | Updated: July 8, 2016 8:04:13 AM

Revenues for India Inc could grow by 8% year-on-year in the quarter ended June 2016, a pace that would be the highest in two years, reports fe Bureau in Mumbai, citing a forecast by Crisil

Revenues for India Inc could grow by 8% year-on-year in the quarter ended June 2016, a pace that would be the highest in two years, reports fe Bureau in Mumbai, citing a forecast by Crisil. The ratings agency points out the first sign of the growth in toplines gathering momentum was seen in the March quarter, when it rose 6.5% from an anaemic 1-3% in each of the five preceding quarters. While this might be well below the long-term average of 12-15%, in real terms — or adjusted for inflation — the growth is expected to be higher than the average for the last four years.

The ratings agency expects Ebidta (earnings before interest, tax, depreciation and amortisation) for India Inc to increase by around13% in the three months to June; while this would be slower than the 17% jump reported in the March quarter, it would nonetheless be well above the rise of 2.5% seen in June 2015. It has, however, cautioned there could be some surprises in accounting treatment because companies with a net worth of over Rs 500 crore would be migrating to Indian Accounting Standards from the June 2016 quarter. Crisil’s analysis is based on 600 companies (excluding financials and oil & gas) that account for approximately 70% of the market capitalisation of the National Stock Exchange.

The agency observes that from an emerging market perspective, this means domestic companies are growing way faster than peers in China, South Korea, Taiwan and South Africa. The contrast couldn’t have been starker: While the financial performance of India Inc is improving, aggregate revenues and Ebitda of companies that are part of the MSCI Emerging Market Index have been swinging the other way, having declined in each of the past six quarters. It adds that to sustain the higher earnings trajectory, three domestic tailwinds are necessary: A normal and well-distributed monsoon, a gradual revival in investment sentiment, and ever-increasing job creation. Global factors, the agency believes, are unlikely to be supportive, and risks have risen further after Britain decided to leave the European Union, or the so-called Brexit.

Crisil expects some export-oriented sectors and firms catering for the domestic urban markets — such as organised retailers, consumer durables and two-wheeler manufacturers — to drive topline growth this time around. The IT sector is expected to report a rise in revenues of 15% on the back of better volumes and the 5% depreciation in the rupee. Moreover, new launches are expected to push up the growth in sales of drug firms by 15%. However, weak rural demand could result in a muted performance for FMCG firms. Among investment-linked sectors, cement producers are likely to report 6-7% growth in volume, indicating some benefits from a pick-up in government-aided construction activity. But revenue growth would be just 1-2% as prices are down in most regions except in north and central India. Reflecting the pick-up in project execution, construction companies too will witness a moderate 7-8% revenue growth, better than the 5% seen last fiscal. For capital goods makers, though, lack of broad-based capex recovery continues to hurt with revenues likely to decline by 5%. Electricity generation companies, on the other hand, could see a moderate 6-8% growth with the commissioning of some new units and increase in plant load factor following a gradual pick-up in demand.

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