India Inc's revenue growth to touch 6-quarter low: CRISIL

CRISIL Research has come out with its report on margin pressure. The research firm expects India Inc.’s revenue growth to be the weakest in the last six quarters as demand moderates in the current quarter.

15 out of 26 sectors to face margin pressure
CRISIL Research, India’s largest independent and integrated research house, expects India Inc.’s revenue growth to be the weakest in the last six quarters as demand moderates in the current quarter. Revenue growth in April-June 2012 (Q1 FY13) is forecast to drop to around 14 per cent from 17.5 per cent in Q1 FY12, given the slowdown in economic activity and gross fixed investments. EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins are projected to decline by 100-150 basis points (bps) on a y-o-y basis to around 19-20 per cent, but remain flat compared to Jan-Mar 2012 quarter (Q4 FY12).
Reflecting the weak demand on the back of economic slowdown, the year-on-year (y-o-y) revenue growth in January-March 2012 (Q4 FY12) moderated slightly to 17.2 per cent from 17.7 per cent in the same quarter last year. Although the EBITDA margins fell 270 basis points (bps) y-o-y, they improved by 35 bps q-o-q, largely driven by the seasonally strong performance of sectors such as commercial vehicles, construction, power, cement and sugar. Notably, net margins rose by around 90 bps q-o-q, supported by the decline in depreciation charges. Depreciation charges as a percentage of revenues fell to its lowest level in the last 10 years while growth in fixed asset creation was at its lowest in the last five years, reflecting the sharp deceleration in the investment cycle. The analysis is based on the aggregate financial performance of 247 large companies across 26 key sectors (excluding banks and oil & gas companies).
The revenue growth in Q1 FY13 is expected to be much weaker due to a sharp deceleration in airlines, auto components, commercial vehicles, hotels, metals, organised retail, real estate and textiles.
“While policy logjam and higher cost of capital have severely dented the investment cycle, persistent inflation, economic uncertainty and high retail lending rates are weighing on consumer sentiment, thereby affecting consumption growth. We believe demand growth will continue to remain weak going forward, as interest rates are likely to remain high for longer than anticipated. The deceleration in fixed capital investments growth may lead to further slowing of consumption demand,” explained Mukesh Agarwal, President, CRISIL Research.
Although, overall EBITDA margins are expected to remain flat for Q1 FY13 on a q-o-q basis, 15 of the 26 sectors will continue to face margin pressure. “For sectors like commercial vehicles, cement, construction and real estate, EBITDA margins are forecast to contract by 100-200 bps q-o-q, due to slower demand growth and high input costs,” said Prasad Koparkar, Senior Director, Industry and Customised Research.
On the other hand, export-oriented sectors like IT services and pharmaceuticals are expected to report strong q-o-q margin expansion aided by the 7 per cent q-o-q depreciation in the rupee. Further, the telecom sector is expected to see a modest expansion in margins q-o-q on account of reducing competitive intensity coupled with cost control measures adopted by the companies. To read the full report click on the attachment Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.
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