Crisil Research Expects India Inc.’s Revenue To Contract First Time In 14 Quarters

India Inc.’s revenue may contract for the first time in 14 quarters as consumption slowed in the economy, according to Crisil Research.

Corporate revenue, excluding banking, financial services and insurance, and oil companies, is estimated to have contracted about 3 percent year-on-year in the quarter ended September, the research arm of Crisil Ratings Ltd. said in a report.

In the past four quarters, aggregate revenue of companies grew at an average of 11-12 percent, it said. Crisil Research analysed 430 companies comprising nearly 65 percent of the National Stock Exchange of India Ltd.’s market capitalisation (excluding financial services and oil companies).

“We are expecting most of the leading consumption segments to see a moderation or drop in revenues. Auto is the worst-hit segment. At an overall level, listed automakers would see 24-25 percent year-on-year drop in revenue,” Hetal Gandhi, director at the research firm, told BloombergQuint during an interview.

Consumer-linked sectors are estimated to have witnessed 5 percent contraction in revenue during the July-September period, according to the report. Revenue of automakers fell as sales failed to pick up amid high cost of ownership for passenger vehicles, deferment of purchases because of expected goods and services tax cuts, lower freight demand aggravated by the new axle norms, and weak financials of commercial vehicles, it said.

“The only sectors where we are seeing a good growth rate are airline and telecom services,” Gandhi said. “Telecom is reeling back after a pricing war for almost six to eight quarters and airline is still in consolidation.”

Also, pressure from the automobiles sector is expected to have dragged the overall earnings before interest, tax, depreciation and amortisation growth to 0-1 percent in the three months ended September, the slowest pace in nine quarters, the report said.

Ebitda margin for sectors such as automobiles, auto components and steel products are likely to decline 250-300 basis points. Cement makers are likely to witness a 500-basis-point expansion in margin on account of improved realisations and lower power and fuel costs. Airline and telecom services are also expected to see some expansion in margin, the report said.

WATCH | Crisil's Hetal Gandhi on why Q2 may be worse than previous quarters.

Here’s how Crisil Research expects revenue of each sector to fare in the second quarter...

• Automobiles: Revenue is estimated to have declined 24-26 percent year-on-year because of muted consumer sentiment. Revenue of passenger vehicles, two-wheelers, tractors and commercial vehicles is estimated to have declined 23-25 percent, 12-14 percent, 17-19 percent and 48-50 percent, respectively.
• FMCG: Crisil Research expects a lower year-on-year aggregate revenue growth of 5-7 percent in second quarter. The sector is facing a slowdown, especially in rural consumption, which is expected to drag down FMCG growth.
• Steel Products: Revenue is expected to have declined about 15 percent year-on-year in second quarter due to a fall in realisation and slower demand growth. Domestic steel prices are expected to have declined 14 percent year-on-year following global cues.
• Cement: Aggregate revenue of large, mid-sized and small firms is estimated have been 5-7 percent higher, primarily driven by a 2-4 percent year-on-year increase in realisation.
• Power: At an aggregate level (across generation, transmission and distribution or Transmission and distribution segments), revenue is estimated to have recorded slower growth of 3-4 percent because of a slowdown in power demand across regions.
• IT Services: Rupee revenue for second quarter is expected to have increased at a moderate pace of 7 percent year-on-year due to the absence of favourable rupee movement, coupled with the expectation of a moderation in the performance for BFSI sector in the U.S.
• Pharmaceuticals: Aggregate revenue of large formulation players is expected to have increased 10-12 percent year-on-year in second quarter. Moderating pricing pressure in the U.S., coupled with new product launches, mainly limited competition and niche products, would continue to support revenue growth. Aggregate revenue for small and mid-sized companies, however, is expected to have risen by only 1-3 percent year-on-year on a high base of the year-ago period.