India Inc's July-Sep Revenue Growth Hits 16-quarter Low Of 5-7%
Crisil Ratings says that aggregate profitability likely improved 70 to 90 bps on-year, led by export-linked sectors
India Inc is estimated to have clocked a slower revenue growth of 5 to 7 per cent on-year for the three months ended September, marking the slowest pace in the past 16 quarters, according to the Crisil Ratings.
It stated that this is because of stagnant performance in the construction vertical, which accounts for a fifth of its revenue, besides a decline in the industrial commodities vertical and subdued growth in investment-linked sectors.
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 to 7 per cent revenue decline due to lower coal offtake, coal-based power generation and e-auction premiums."
Sharma added that 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 to 3 per cent due to price drop led by cheap Chinese imports.”
The cement sector’s revenue growth also slipped 2 to 3 per cent on a high base of the corresponding quarter last year and lower realisations due to weak prices.
Additionally, sluggish government spending after elections slowed construction activity, which, along with above-normal monsoon, limited cement volume growth.
The monsoon also impacted the petrochemicals sector, which reported flat on-year revenue growth in the second quarter.
The agriculture sector, including fertilisers (2 per cent of the sample set's revenue), saw a 20 to 22 per cent drop in revenue due to fall in raw material prices.
On a positive note, the exports segment (22 per cent of the sample set) grew 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 (70 per cent of the segment's revenue) experienced a more modest growth of 3 to 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 (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 to 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 to 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 (2 per cent of the sample set), clocked 4 per cent on-year growth. Aluminium (80 per cent of revenue contribution in this category) posted on-year growth of 3 to 4 per cent, driven by higher global aluminium prices due to lower production in China.
India Inc’s profitability is estimated to have improved 70 to 90 basis points (bps) on-year during the quarter. The overall earnings before interest, tax, depreciation, and amortisation (Ebitda) for 435 companies grew 10 per cent on-year.
For IT companies, Ebitda margin expanded 110 to 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 to 340 bps for formulation players. In the bulk drugs segment, recovery in exports and higher realisations led to 230 to 250 bps margin expansion.
It stated that 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
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