Revenues of Indian corporates have grown by 22% in the June quarter from a year ago, according to a report released by rating agency ICRA. The increase in revenues has been attributed to the strong growth in both consumer-based industries such as consumer goods, and auto; and commodity sectors such as cement, iron, steel, and oil and gas.

The report credits lower inventories of the companies in the first quarter of FY18 as another factor for the growth in revenues. At the end of the first quarter of FY18, the government implemented the goods and services tax (GST) after which most industries destocked and raised prices to offset the rise in input costs.

“The results from consumer-oriented sectors such as FMCG (fast moving consumer goods), consumer durables, and automobiles show continued domestic volume growth, which aided sales growth in these sectors. However, it is important to note that the volume growth in Q1 FY 2019 has come on a low base because sales in Q1 FY 2019 were impacted by GST-related inventory de-stocking. Besides volume expansion, the increase in sales was also supported by price hikes across multiple segments because of increase in raw material costs, which was a key commentary in the earnings call of many companies in this sector. The sustained volume growth despite price hikes indicates continued growth momentum in the domestic market,” the report stated.

According to the report, the two sectors that have done well in the first quarter are pharmaceuticals and information technology (IT). June quarter results for pharmaceuticals show a growth of 20.8% supported by strong performance in the domestic markets. The IT sector also reported a healthy growth of 12.9% over the corresponding period last year because of their strong performance in their digital offerings and partial recovery in the financial services sector.

“The strong revenue growth has ensured that companies were able to protect their Ebtida (margins (overall flat) to a larger extent on both y-o-y (year-on-year) and q-o-q (quarter-on-quarter) basis, reflecting that they have managed to offset the increase in raw material and fuel price through price hikes, operating leverage and cost reduction,” said Shamsher Dewan, vice-president, corporate sector ratings, ICRA.

However, Ebtida (earnings before tax, interest, depreciation and amortisation) margins for a few industries such as airlines and cement have been under pressure. The Ebtida margin of the airline industry was under pressure because of rising fuel prices, weaker rupee and competitive pressures; the cement sector’s Ebtida margin was negatively impacted by a rise in raw materials’ prices and freight rates. Market leader Indigo reported a 30% increase in the fuel cost per available seat kilometre in Q1FY19. An increase in petcoke (raw material) prices adversely impacted the Ebtida margins of cement companies. “UltraTech cement reported a 15.6% increase in its power and fuel costs on a y-o-y basis while Ambuja Cement indicated a 9.8% increase...” the report added.

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