CRISIL Research, India’s largest independent and integrated research house, expects revenues of corporates to grow barely 1.6 per cent year-on-year in the three months ended September 30, 2015, marking the fifth consecutive quarter of single-digit growth. Fragile consumption demand, especially in the rural areas, weakness in investment-linked sectors, and the meltdown in global commodity prices will more than offset the healthy topline growth expected in the export-oriented sectors. Ebidta – or earnings before interest, taxes, depreciation, and amortisation – growth is expected to be just 2 per cent. Our analysis is based on 600 companies (excluding financials and oil & gas), which account for 70 per cent of the market capitalisation of the National Stock Exchange.
However, revenue growth is expected to improve in the second half of the current fiscal following a mild uptick in consumption, increased government spending, and the statistical low-base effect (revenue growth was 3 per cent in the second half of last fiscal). Despite this, revenue and earnings growth for the entire fiscal is likely to remain in single digits and well below consensus estimates.
Says Prasad Koparkar, senior director, CRISIL Research, “Export-linked sectors will be the only bright spot in terms of topline. Though merchandise exports have been declining for several months now, listed exporters (primarily in the IT services and pharmaceuticals sectors) are expected to grow at around 13 per cent in the September quarter, helped partly by the 7 per cent depreciation in the rupee. Domestic consumption-driven sectors with high dependence on rural consumption will be impacted by tardy growth in rural income, below-normal monsoon and poor pricing power.”
FMCG companies are likely to post 6-7 per cent revenue growth, down from 12 per cent in the last fiscal. In contrast, sectors more focused on urban consumers such as multiplexes, retail, and telecom are projected to post healthy double-digit topline growth. Aggregate revenues of commodity-linked sectors (steel, petrochemicals, and manmade fibres) are expected to decline by 14 per cent.
While public investments have started to gain traction, this is yet to reflect in the performance of investment-linked sectors because of overcapacity and weak demand in end-use sectors such as real estate. Cement and construction companies are projected to post 2-3 per cent topline growth, while capital goods manufacturers are likely to see a decline of 7 per cent. Power offtake, too, remains subdued due to poor financial health of state discoms and weak economic activity, which will curb topline growth for generation companies.
Ajay Srinivasan, director, CRISIL Research, said, “Ebidta margin is expected to be up a marginal 5-10 basis points (bps) to 17.5 per cent in the second quarter. Companies in the FMCG, automobiles, airline, tyre, and power generation sectors are likely to see an expansion because of lower raw material costs. However, despite support from a weaker rupee, we expect Ebidta margin of IT services and pharmaceutical companies to decline by 70 bps and 130 bps, respectively, because pressure on their realisations has intensified. On the other hand, a surge in data revenue and control over marketing costs will boost the Ebidta margin of telecom companies by close to 250 bps.”