Slower growth in investment, export-oriented sectors and soft commodity prices to blame
CRISIL expects India Inc.'s revenue growth to slip to a 6-quarter low of
7% on a year-on-year (y-o-y) basis in the December 2014 quarter. This
tepid show will be due to weak performance of investment-linked sectors,
stable currency exchange rates (y-o-y) impacting topline growth of
export-oriented sectors, and weak global commodity prices. Revenue
growth was around 9% in the preceding quarter and 13% in the December
2013 quarter. On the profitability front though, we foresee a marginal
uptick in EBITDA margins. Prasad Koparkar, Senior Director, CRISIL Research said, "Investment driven sectors will drag down growth. For example, volume growth for top 15 cement companies, accounting for 55% of industry volumes, will decelerate to 5% in Q3 from 9% in the first half of the year. Capital goods manufacturers, continuing to grapple with weak order inflows, are likely to report a 9% y-o-y decline in revenues. While construction companies will report a slight uptick in topline growth, growth will still lag aggregate corporate India revenue growth."
IT service providers are expected to report 10-11% 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. Cotton yarn spinners will be hurt by weak export demand from China and lower yarn prices, but readymade garment exporters will continue 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% topline growth led by better utilisation of new capacities and higher realisations. Among domestic consumption-oriented sectors, automobile revenues are forecast to grow ~7% (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 Research 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."
