India Inc is expected to post a revenue growth of 5-7 per cent on-year for the three months ended September, marking the slowest pace in the past 16 quarters, stated a report by CRISIL. The slow pace of growth, it added, was due to stagnant performance in the construction vertical, which accounts for a fifth of India Inc’s revenue, besides a decline in the industrial commodities vertical and subdued growth in investment-linked sectors.
CRISIL analysed 435 companies that account for almost half of the listed market capitalization to conclude the findings. It said that these companies posted 8.3 per cent growth in the April-June quarter.
Pushan Sharma, Director- Research, CRISIL Market Intelligence and Analytics, said, “Revenue of industrial commodities, investment and construction-linked sectors—collectively accounting for ~38 per cent of our sample set—grew only 1 per cent, weighing down overall performance. The industrial commodities sector, such as coal, saw a 6-7 per cent revenue decline due to lower coal offtake, coal-based power generation and e-auction premiums. In the investment sector, the power segment (~70 per cent revenue contribution) grew just 1 per cent as above-normal monsoon reduced power demand. Among construction-linked sectors, steel revenue fell 2-3 per cent due to price drop led by cheap Chinese imports.”
Performance across sectors
CRISIL said that the revenue growth in the cement sector slipped 2-3 per cent on a high base of the corresponding quarter last year and lower realisations due to weak prices. Further, cement volume growth was limited by sluggish government spending after elections and above-normal monsoon slowed construction activity. The monsoon also impacted the petrochemicals sector, which reported flat on-year revenue growth in the second quarter.
The agriculture sector, including fertilisers, which constitute 2 per cent of the sample set’s revenue, saw a 20-22 per cent drop in revenue due to fall in raw material prices.
However, the exports segment, which constitutes about 22 per cent of the sample set, grew by around 5 per cent. In this space, the pharmaceutical sector maintained its momentum with 11 per cent revenue growth, driven by strong demand in regulated markets and easing of pricing pressure in the US. IT services experienced a more modest growth of 3-4 per cent, as clients in the banking and financial services sectors in North America and Europe deferred non-essential projects.
Consumer discretionary, staple products and services, which constitutes about 36 per cent of the sample set’s revenue, recorded 15 per cent revenue growth. In the consumer discretionary products sector, two-wheeler players saw 15-16 per cent revenue growth, driven by higher volumes due to rural recovery and price rise. The textiles sector saw volume-driven growth, with stable prices. In the consumer discretionary services vertical, telecom services’ revenue rose 12-13 per cent, fuelled by tariff hikes across technologies, premium charges for 5G services and subscriber migration to plans with higher average revenue per user.
The ‘others’ vertical, meanwhile, clocked 4 per cent on-year growth. Aluminium (80 per cent of revenue contribution in this category) posted on-year growth of 3-4 per cent, driven by higher global aluminium prices due to lower production in China.
CRISIL maintained that India Inc’s profitability is estimated to have improved 70-90 basis points (bps) on-year during the quarter. The overall earnings before interest, tax, depreciation, and amortisation (Ebitda) for approximately 435 companies grew by around 10 per cent on-year.
Elizabeth Master, Associate Director- Research, CRISIL Market Intelligence and Analytics, said, “Among the top 10 sectors, which account for ~75 per cent of revenue, eight saw Ebitda margin expansion, led by export-linked sectors such as IT services and pharmaceuticals, investment-linked sectors such as power, and consumer discretionary sectors such as automotive and telecom services. The two sectors that faced margin contraction were steel, due to higher iron ore prices, and cement, due to subdued pricing.”
For IT companies, CRISIL said, Ebitda margin expanded 110-130 bps due to higher employee utilisation and lower attrition rates. In pharma, topline growth and lower raw material costs led to margin expansion of 320-340 bps for formulation players. In the bulk drugs segment, recovery in exports and higher realisations led to 230-250 bps margin expansion.
Among investment-linked sectors, a fall in coal e-auction premiums improved margin by 130-150 bps on-year for power generation companies.
Among consumer discretionary sectors, telecom services’ margin expanded 120-140 bps due to lower licence fees, spectrum charges and network operating expenses, along with steady revenue growth.
In the steel sector, while coking coal prices dipped on-year, iron ore prices rose on global cues, increased export demand and strong domestic demand, resulting in a margin contraction of 40-60 bps on-year. The cement industry’s margin also contracted 110-130 bps due to subdued pricing and despite easing cost pressures.
From: financialexpress
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