Revenue growth bottomed out: CRISIL Research

CoolAvenues Newswire | January 03,2014 12:03 pm IST

CRISIL Research, India’s largest independent and integrated research house, projects India Inc’s revenues (excluding financial services and oil companies) to increase by a tepid 7-9 per cent y-o-y, during October-December 2013 (Q3FY14). However, as against the previous quarters, wherein growth was concentrated among a few sectors, from Q3FY14 onwards, several sectors are expected to register a gradual improvement in growth rates.

The rise in revenues, though, would not translate to higher profitability. EBITDA margins during the quarter are estimated to remain stable y-o-y at 17 per cent.

Mukesh Agarwal, President, CRISIL Research, says, “Revenues, after declining for nine successive quarters, rebounded in the July-September 2013 quarter. However, the growth in revenues was largely on account of export-oriented sectors benefiting from a weak rupee. From the third quarter of 2013-14, though, we expect a gradual recovery in more sectors. Apart from IT, pharmaceuticals and textiles, domestic consumption-linked sectors will see moderate improvement, as rural demand picks up owing to a better monsoon. Also, while growth in investment-linked sectors will remain weak, unlike in the last many quarters, it is not expected to deteriorate further. A more sustained recovery is expected only in 2014-15, spurred by investments in projects fast-tracked by the Cabinet Committee on Investments, and lifting of the mining ban by the government.”

In Q3FY14, CRISIL Research expects one-third of the 50 sectors (encompassing 605 companies) covered in this analysis, including IT services, pharmaceuticals, tractors, textiles, FMCG, retail and media, to clock double-digit growth. Higher rural income, owing to a good monsoon, will benefit two-wheeler and tractor manufacturers, which, in turn, will support the auto components sector. Volume growth in the FMCG sector is expected to sustain. Also, steel companies will register higher growth, led by import substitution and rise in exports due to rupee depreciation. Infrastructure linked sectors such as construction, roads and cement have bottomed out as well. Moreover, the pace of revenue decline in the commercial vehicles and capital goods sectors is expected to slow down, owing to a low base.

Revenue growth has bottomed out; to grow at 7-9 per cent in Q3 FY14

▪ Export oriented sectors such as IT, pharmaceuticals and readymade garments (RMG) are expected to record robust growth led by rupee depreciation of ~14 per cent. While volume growth is expected to be moderate across these sectors, realizations (in USD terms) would be under pressure, mainly for IT and pharmaceuticals.
▪ Revenue growth in investment linked sectors not expected to deteriorate further

- Construction sector revenue growth is estimated to be around 3 per cent (y-o-y), while that of the capital goods sector are expected to decline by 3 per cent due to slow project execution and lower order inflows
- Higher volumes are expected to drive growth in Cement (due to pick-up post monsoons) and Steel (due to import substitution and rise in exports). However, realisations are expected to remain under pressure.
▪ Weak demand is expected to lead to a revenue decline in Passenger cars as well as Commercial vehicles (mainly due to drop in MHCVs sales due to weak industrial activity) segments. However, revenues of Two-wheelers segment is expected to rise driven by festive season sales coupled with price hike and higher export realisations.
▪ Sugar and Coal sectors are expected to witness a revenue decline of 8 per cent (y-o-y) and 1 per cent (y-o-y) respectively due to pressure on realisations. On the other hand, higher realisations will drive 11 per cent (y-o-y) growth in FMCG, while volume growth will continue to remain sluggish.

▪ Revenue growth in power generation is expected to rise by 6.5 per cent led on account of higher generation led by capacity additions; PLFs are expected to remain under pressure due to fuel availability issues and weak demand.

▪ Telecom services sector is expected witness 8 per cent growth led by higher ARPU and rise in data revenues.

However, improvement in revenue is not expected to lead to higher profitability across all sectors. According to Prasad Koparkar, Senior Director, CRISIL Research, “Margin expansion is not expected until pricing power returns, which we do not expect before financial year 2014-15. In the third quarter of 2013-14, margins of sectors such as IT and pharmaceuticals will increase by 80-100 bps due to a weak rupee. Margins of the telecom sector will improve by 70 bps and that of the two-wheeler sector will rise by about 100 bps, led by higher realisations. Margins of the cement, power, airlines and paper sectors, though, are expected to decline because of high input costs.”

Due to muted EBITDA growth and high interest costs, net profit margins, which declined by about 300 bps in Q2FY14, are expected to remain under pressure in Q3FY14, particularly of sectors such as construction, housing, metals, telecom and capital goods.


For complete Report Click at Below link:

CRISIL Quarterly update of industry performance: October-December 2013


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