See India Inc FY14 revenue growth in 10-12% range: CRISIL

According to rating firm CRISIL Research, India Inc is likely to see a revenue growth of 10-12 percent in FY14.

Speaking on the analysis of the report, Prasad Koparkar, CRISIL Research expects the revenue to grow around 5-6 percent in the first quarter of FY14.

Also Read: US job data vital for world mkts; $ in its prime: Roubini
With regards to specific sectors, he sees negative growth for auto space in Q1, barring the tractor business. "Tractor has done very well, about 18-20 percent growth in the first quarter. But almost all the segments whether it is passenger vehicles, commercial vehicles both Medium and Heavy Commercial Vehicle; (MHVC) and light commercial vehicle (LCV) have shown sharp decline," he adds.
Despite rupee depreciation, he does not see any improvement in the growth of IT sector in Q1. Also, he continues to be bullish on the pharma sector and expects positive surprises.
However, Koparkar is bearish on metals and capitals good space. Below is the verbatim transcript of his interview on CNBC-TV18 Q: What about the coming quarter not just with respect to revenues but margins and profitability? How do you see the coming quarter for corporate India?
A: We are seeing very marginal improvement in revenue growth. This is one of the lowest growth periods in terms of top-line. Compared to last quarter, there is some improvement but 5-6 percent is absolutely low growth. This is a nominal growth and if one looks at inflation which is still running at 6-7 percent, corporate India is hardly recording any growth.
However, we believe the worst in terms of revenue growth is behind us. Last quarter,4.5 percent was the bottom and this quarter we are seeing about 6 percent growth. Going forward in FY14, growth will improve.
As far as margins are concerned, over the last 3-4 quarters despite consecutive decline in revenue growth, we have seen margins holding up and therefore, earnings before interest, taxes, depreciation and ammortisation (EBITDA) margins have stayed in the range of about 18.5-19 percent. In this quarter, margins will be pretty much flat as compared to year ago. Q: What about net margins? Your graph for Q4 last year shows an uptick in net margins. How will the net margin picture look in Q1?
A: If one looks at Q4, we have seen some uptick in net margin but that was largely driven by below EBITDA level items in terms of other income, tax and depreciation and is unlikely in the current quarter. Other income is not going to be as strong as we have seen in the past. Interest cost continue rising and as a percentage of EBITDA, it is up by almost 50 percent compared to what it was close to about a year ago. We don’t see uptick in net margins in the current quarter at least.
_PAGEBREAK_ Q: What is your full year revenue forecast? For the quarter it is 5-6 percent, does that improve quarter on quarter from the available data? What makes you believe that margins will remain in 18-19 percent range because now we have the added pressure of rupee depreciation and therefore, higher imported inputs and that continues rise in diesel prices?
A: For the full year, we will see revenue growth in early double digit, maybe 10-12 percent which is nothing significant than FY13 which was about 10 percent. This will also benefit from some improvement in the macro economic recovery.
In the last one-two quarters, all the drivers of growth whether exports, government spending, corporate investment cycle or even consumption, all had simultaneously declined. Some of these things will start picking up and also there is a base effect. In the first quarter of last year, revenue growth was about 17 percent, in second quarter it fell to 11 percent, then 9 percent and then 4.5 percent. As we go ahead, base effect will also help. For full year we are expecting about slightly higher than double digit kind of growth. Q: Talking about individual sectors and first on the auto space – at least the sales numbers over the last few months continue to point a very bleak picture. Will Q1 be worse than Q4? Is the slow down going to be more in FY14 compared to FY13?
A: Q1 and Q4 may not be comparable because of seasonal issues but Q1 is going to be pretty bad. We are expecting negative growth almost across all the segments barring tractor. Tractor has done very well about 18-20 percent growth in the first quarter. But almost all the segments whether it is passenger vehicles, commercial vehicles both Medium and Heavy Commercial Vehicle; (MHVC) and light commercial vehicle (LCV) have shown sharp decline.
The situation will be better for full year. We are not expecting significant growth. In passenger car we expect full year growth to be just about 1-2 percent. In commercial vehicle MHCV, the growth from last years minus 26 percent will improve but it is unlikely to be a big positive number and will be just about 1-2 percent. In LCV, compared to historical growth of anywhere between 25-30 percent, we will see a growth which is much muted but better than the other part of the commercial vehicle (CV) segment Q: With regards to this earning season, which sectors will reward the investors and which ones will disappoint?
A: Despite the rupee depreciation, there is a general expectation that some of the sectors like IT will directly benefit. It is correct because if one looks at top tier IT companies, almost 80 percent of revenue comes from exports. However, despite rupee depreciation we are unlikely to see any benefit. In fact, we are forecasting a decline in y-o-y margins for top tier companies driven by two factors. Firstly, due to the wage cost that has gone up, secondly the operating cost and bench utilisation has not really improved. We expect no great improvement in the IT sector.
Pharma is one sector which will continue to provide positive surprises. Despite, what has happened in companies like Ranbaxy and Wockhardt, these are company specific issues and at the sector level it will continue to show robust top-line and profitability growth.
One more sector is telecom. After many quarters of negative surprises, this sector is bottoming out both in terms of subscriber growth, in terms of discounting and pricing pressure. We expect telecom to start showing some improvement in profitability now. Q: Are there any sectors where you see revenue growth lower than previous year?
A: Metals will be one space because volumes are not picking up and prices are down. The non-ferrous metals prices are down on a year-on-year basis by about 10 percent internationally. Even after considering the rupee depreciation, it is not really benefiting domestic players because of muted demand growth and therefore, domestic prices are also down.
Similarly, in steel hot rolled (HR) prices have declined from close to USD 600 per tonne to USD 530 per tonne internationally. Domestically also there will be continued pressure and that is one sector where we will see some negative growth. Q: What is your take on the capital goods sector?
A: Capital goods sector has come under severe strain. The order books have declined. For the current quarter at least we are forecasting a negative growth of about 2-5 percent in revenues. Full year also very unlikely we will see anything better than flattish growth on the top-line. Hopefully, the investment cycle will show some traction in second half, but it will take some more time to translate that in revenues. There are enough projects struck in the execution stage due to which the sector will take some time, apart from something that can provide a little early boost.