India Inc likely logged a 5-6% on-year revenue growth in Jul-Sep: Crisil

Corporate revenue is expected to have grown a modest 5-6% on-year in the July-September quarter, following underwhelming performance of the power, coal, information technology (IT) services and steel sectors, according to a note by ratings agency Crisil. This accounts for about a third of the revenue of over 600 companies analysed by the ratings agency. 

The growth, though, would be 100 basis points (bps) higher sequentially. Earnings before interest, tax, depreciation and amortisation (Ebitda) are seen edging up ~1% on-year. However, Ebitda margin likely fell 50-100 bps as companies struggled to fully pass on incremental costs in the automobile, pharmaceuticals and aluminium sectors.

Here's what Crisil analysis of the 600+ companies, which account for more than half of the market capitalisation of the National Stock Exchange, indicates:

1.) Continuing geopolitical uncertainties weighed on the IT services sector, with project deferrals likely limiting revenue growth to 1%. In the steel sector, despite volume growth of 9%, revenue is expected to have grown a moderate 4% on-year owing to a decline in steel prices. Notably, hot-rolled coil prices declined 1% and primary thermo-mechanically treated steel declined 6% on-year, Crisil said.

2.) The power sector’s revenue likely grew a mere 1%, affected by a surge in hydro-generation because of monsoon being 108% of the long-period average and a 10% rise in renewable energy generation, which led to reduced demand for coal generation. As a result, the coal sector’s revenue growth was likely flat.

3.) The rationalisation of GST rates created anticipation of new stock with lower prices, causing a temporary disruption in segments such as passenger vehicles and fast-moving consumer goods (FMCG). "As a result, retailers and distributors delayed FMCG purchases, while high inventory levels and sluggish retail sales affected demand for passenger vehicles in Q2," said Pushan Sharma, Director, Crisil Intelligence, said. 

4.) The cement, pharmaceuticals and telecom services sectors are also expected to have propelled growth. The cement sector likely rebounded with 8% revenue growth following a 6-7% on-year increase in volume over a low base and pre-festival demand. The pharmaceutical sector is expected to have grown 8%, driven by healthy export demand and stable domestic market conditions. Telecom services revenue likely grew 7% because of higher realisations on account of costlier subscription plans, even as subscriber growth was flat.

5.) The top seven sectors that collectively account for more than half of India Inc’s revenue likely saw margins decline during the quarter. For instance, the automobile sector’s margins are expected to have contracted 150-200 bps on-year owing to the continual rise in aluminium prices (+11% on-year). "Margins for the aluminium sector likely moderated 100-150 bps on-year because of lower export realisations on account of lower regional premiums," said Elizabeth Master, Associate Director, Crisil. 

6.) Margins in the pharmaceutical sector are expected to have contracted 150-200 bps owing to pricing pressure on existing products, which faced higher competition in export markets compared with newly launched products, Crisil said, adding that margins in three of the top 10 sectors—cement, steel and telecom services—likely expanded during the quarter.

7.) The cement sector’s margin is expected to have risen 500-550 bps, driven by healthy revenue growth and stable costs. In the steel sector, margins are expected to have expanded 150-200 bps, owing to a 13% on-year decline in coking coal costs. The telecom services sector likely saw margins expand 180-230 bps because of lower operating expenses, thanks to improved network efficiency following the replacement of old, leaky batteries with new ones.