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Revenue growth at 6-quarter low in Q3FY15: CRISIL Research

The News International Team

India Inc’s revenue growth may slip to a 6-quarter low of 7 percent (Y-o-Y) in December, says CRISIL. The research agency sees the tepid growth on the back of weak performance of investment-linked sectors, stable currency exchange rates impacting topline growth of export-oriented sectors, and weak global commodity prices.

Revenue growth was around 9 percent in the preceding quarter and 13 percent in the December 2013 quarter. However, CRISIL sees a marginal uptick in EBITDA margins.

“Investment-driven sectors will drag down growth. For example, volume growth for top 15 cement companies, accounting for 55 percent of industry volumes, will decelerate to 5 percent in Q3 from 9 percent in the first half of the year. Capital goods manufacturers, continuing to grapple with weak order inflows, are likely to report a 9 percent Y-o-Y decline in revenues. While construction companies will report a slight uptick in topline growth, it will still lag aggregate Corporate India revenue growth,” said Prasad Koparkar, Senior Director, CRISIL Research.

CRISIL expects IT service providers to report 10-11 percent revenue growth Y-o-Y (in dollar terms) in Q3, similar to the growth recorded in each of the preceding 6 quarters. “However, due to lack of currency tailwinds, rupee revenue growth will be far lower than in 2013-14,” the report said.

It also expects cotton yarn spinners to be hurt by weak export demand from China and lower yarn prices, but sees readymade garment exporters continuing to do well due to healthy growth in volumes.

“The rapid slide in global commodity prices will hurt topline growth of steel, petrochemical, manmade fibres, and chemical producers. Aluminium, though, will buck the trend, reporting over 30 percent topline growth led by better utilisation of new capacities and higher realizations,” the report said.

Among domestic consumption-oriented sectors, automobile revenues are forecast to grow around 7 percent (propelled by higher domestic sales of medium & heavy commercial vehicles). Others forecast to report above average topline growth include FMCG (realisation-led), telecom (spike in data usage), and pharmaceuticals.

CRISIL expects aggregate EBITDA margins to improve by 25-50 bps Y-o-Y in Q3FY15.
Ajay Srinivasan, Director, CRISIL Research, said: “We expect automobiles, cement, roads, and telecom to outperform. Margins may rise 70 bps in automobiles, propelled by commercial and passenger vehicle segments, while margins of component companies could expand by around 120 bps due to higher utiilisation levels and lower input costs. EBITDA margins of road developers are likely to jump 350-450 bps due to a rise in operational BOT (build operate transfer) projects, while surging data revenues and control over marketing costs will lift telecom operators’ margins by 140 bps. On the other hand, despite softer crude oil prices, profitability gains could be limited for companies with raw materials linked to the crude chain, due to losses booked on inventory previously procured. Central power utilities, coal, IT, complex fertiliser and paper companies are expected to report lower margins.”

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