Corporate revenue growth is headed for a speed bump in the third quarter of fiscal year 2018-19, according to a report from CRISIL Research.

According to the report, revenues of companies are expecting to grow 12-13% over last year in Q3 of FY19, which is around 400-500 basis points lower than the 17% average revenue growth during the first two quarters of the current fiscal. The forecast is based on CRISIL Research’s analysis of 362 companies, excluding BFSI and oil sector companies.

However, the report also goes on to say that the slowdown in topline growth in Q3 can be largely attributed to a high-base effect. “…That’s primarily because of the high-base effect created by the 13% growth seen in the third quarter of last fiscal, which followed 7% in the preceding two quarters,” the report said.

More worrying are the projections for metrics like operating profit and margins which are indicators of a company’s performance and health. The report said growth in operating profit or EBITDA is expected to be just below 10% year-on-year, a significant drop when compared to the 15% growth in three quarters before Q3 of 2018-19. Profit margins, according the CRISIL Research, are expected to contract 50 basis points over last year due to rising raw material costs across sectors.

Prasad Koparkar, senior director, CRISIL Research said, “Commodity and infrastructure-linked sectors are expected to support revenues for the quarter ended December. Steel, cement, natural gas and petrochemicals are expected to be driven by volume and/or realisation growth, while sectors such as construction and capital goods are expected to grow on a pickup in execution of key infrastructure-led government schemes.”

Koparkar went on say that aviation, services and retail revenues are likely to be buoyed by positive demand sentiment as these as consumption-spending-led sectors. He also added that IT and pharma could receive a boost from the weaker rupee.

However, the report sounded a word of caution for sectors like automobiles, aluminium, sugar and telecom which are likely to see a negative impact due to rising input costs, lower realisations and competitive pressures.

Rahul Prithiani, director, CRISIL Research said, “Oil prices are expected to print 10-11% higher even as rupee depreciation would be 11% year-on-year. Limited ability to pass through increased input prices to end customers in sectors such as airlines, cement, retail and telecom due to competitive pressures and high sensitivity to price movements will also accentuate pressure on the margins.”

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