India Inc is expected to report EBIDTA (earnings before interest, taxes, depreciation, and amortisation) growth of nearly 7 per cent for the quarter ended March 31, 2016, according to CRISIL Research. This will be the fastest growth in six quarters, driven by higher gross margins derived from lower commodity prices.
Net profit growth is expected to accelerate and be in the range of 12-15 per cent owing to higher top-line growth, improvement in EBIDTA margin, subdued working capital requirement, and lower interest cost.
Revenue growth would, however, remain lacklustre at nearly 2 per cent because of weak investment demand, patchy demand recovery and low pricing power because of competition. If monsoon is adequate and well-distributed after two successive failures, it will set the stage for a promising fiscal 2017 where revenue growth could pick up on broad-based demand recovery. However, it is unlikely to touch double digits and would more likely be around 8 per cent or twice the nearly 3-4 per cent expected in fiscal 2016.
The analysis is based on 600 companies (excluding financials and oil & gas) that account for nearly 70 per cent of the market capitalisation of the National Stock Exchange.
Sectors such as automobiles, FMCG, pharmaceuticals, cement and organised retail are likely to outperform in fiscal 2017. Large steel players are also likely to do better because of a pick-up in global steel prices and reduction in imports.
Prasad Koparkar, Senior Director, CRISIL Research said: “The modest improvement in performance in the March 2016 quarter would be driven by a handful of sectors. Information technology service providers are likely to post nearly 14 per cent rupee revenue growth, driven by volume growth and 8 per cent depreciation in the rupee against the dollar.
EBIDTA margin would jump up substantially as a one-time expense (the bonus announcement by TCS) had pulled it down last fiscal. Excluding this impact, margin would remain relatively flat. Automobile manufacturers would also do well due to reasonably strong domestic sales and continuing benefits from low input costs.
Media companies are also likely to post healthy numbers, spurred by strong growth in advertising revenue, pick-up in subscription revenue (for television broadcasters) and greater operating leverage (DTH and multiplexes). Other sectors that should do well include pharmaceuticals, power generation and organised retail.”
Among investment-linked sectors, cement manufacturers should report a strong pick-up in volume, but weak pricing (7-8 per cent lower, pan-India level) would impact both topline and bottomline growth. Construction and capital goods companies would continue to report sluggish growth in the wake of subdued order inflows and liquidity constraints hampering the ability of highly-leveraged companies to execute.
Ajay Srinivasan, Director, CRISIL Research, said, “Auto component makers with domestic market focus should do well, but those serving markets abroad are likely to report poor numbers as orders from the trucks segment in North America have declined substantially. Telecom service providers are projected to report 6-7 per cent revenue growth, impacted to some extent by the reduction in interconnect usage charges. Their Ebitda margin, too, would decline by 30-40 basis points because of a rise in network operating expenses, and subscriber acquisition and marketing cost as operators roll out 4G services. Spectrum fee amortisation and higher interest cost will pull down net profit, too. Fertiliser companies are expected to post a sharp decline in sales but Ebitda margin would expand by 300-500 basis points because of a decline in ammonia and phosphoric acid prices.”
Public sector banks should once again report a decline in net interest income and higher provisioning because of worsening asset quality. Provisioning requirements of private sector banks will also balloon, resulting in net profit growth lagging net interest income growth. Given increased slippages from large corporate accounts, aggregate gross non-performing assets are expected to touch 7.7% of advances by the end of the current fiscal, up from an estimated 6.8% as of March 2016