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Revenue of Corporate India is likely to have jumped 8-10% year-on-year during the second quarter of the current fiscal after four quarters of subdued growth, according to CRISIL Market Intelligence and Analytics (MI&A) report. It said that the revenue has also grown quarter-on-quarter by an estimated 150-200 basis points.
The analysis is based on more than 300 companies excluding financial services and oil & gas sectors. The report further said that out of the 47 sectors tracked by CRISIL MI&A, nine sectors which accounts for over 70% of the total revenue witnessed growth on a yearly basis.
The report stated that lower revenue in agri-linked sectors, industrial commodities, petrochemicals, commodity chemicals, and aluminium weighed on the overall revenue growth.
Sectors that likely witnessed revenue growth
“Growth in revenue was largely skewed towards consumer discretionary products and services, where automobiles and the retail sector led the pack and construction-linked sectors, where companies accrued benefits from an early deployment of capital expenditure by the roads and railways ministries,” said Aniket Dani, Director – Research, CRISIL MI&A.
The report by CRISIL stated that the automobile sector is expected to have grown 12-14%, driven by three sub-segments – passenger vehicles, two-wheelers and commercial vehicles. The growth was on the back of 20-25% pick-up in passenger vehicles due to healthy demand sentiment, supported by new model launches, supply-chain improvement and strong product portfolio. The report said higher demand also gave confidence to automakers to increase prices of vehicles multiple times.
Among consumer discretionary products segment, retail sector continued its momentum growing by 16-18%, according to CRISIL MI&A. Revenue in hospitality segment comprising airline services and hotels rose 20% and media and entertainment segment witnessed 19-21% growth. The consumer discretionary services vertical likely grew 13-15% year-on-year.
Revenue of cement companies may have recorded a 13-15% growth on the back of 12-14% volume growth year-on-year, helped by lower impact of rains on construction activities due to El Nino.
Steel sector’s revenue growth is estimated at 8-10% due to steady domestic demand, while volume expanded significantly by 17-19% during the second quarter of the current fiscal, as against just above 10% in the first quarter. The increase was attributed to strong demand for long steel products for infrastructure projects, but muted global demand restricted export growth to 2-4%.
Trends in Indian exports
Weak demand in international markets continued to weigh on merchandise exports. However, essentials such as pharmaceutical sector is likely to have recorded about 10-12% YoY growth owing to continued momentum in exports to regulated markets and lower pricing pressure in the US.
IT services, too, likely bucked the trend in exports by recording an 18-20% growth because of deals led by increased focus on cost optimisation and consolidation.
Meanwhile, revenue of aluminium industry may have contracted 12-14% due to soft global growth. Global prices fell marginally and reflected in the premiums of major export destinations.
Commodity chemicals saw downward pressure owing to China’s slow recovery and widespread destocking, resulting in a likely 10-12% fall in revenue. Lower realisations amid muted demand also impacted revenue of cotton and synthetic textiles. For gems and jewellery, export demand remained weak amid modest purchasing power.
Improved profitability
CRISIL noted that operating profitability may have expanded by 200-300 basis points year-on-year during the second quarter of FY24. Subsequently, overall Ebitda margin for about 350 companies is estimated at 20-22% during the first half of this fiscal, up from around 18% a year ago, according to CRISIL MI&A.
“Prices of key commodities such as crude oil and steel products have eased around 10%, while aluminium prices have fallen 13% so far. Power and freight costs have also come down. This, coupled with volume growth in the domestic market, will support operating profitability in the near term,” said Sehul Bhatt, Associate Director – Research, CRISIL MI&A.
The operating profitability expanded on a yearly basis for the top eight industries except the construction sector, said the report. Meanwhile, cement, steel products and aluminium industry gained the most with a 700-900 bps rise in Ebitda margin.
Further, softening of commodity prices led to increase in automobile industry’s margin by 150-200 bps and the pharmaceutials sector benefited from moderation in costs of some active pharmaceutical ingredients.
Profitability of telecom industry likely improved by 150-200 bps due to stable costs and higher realisations from continued tariff revisions and migration of customers to upgraded technologies.
Outlook
CRISIL said that revenue growth is expected to get a boost from the festive season-led demand for consumer discretionary products and services.
However, two factors that could affect corporate performance in the second half are: inadequate monsoon resulting in lower rural demand and uncertain export demand. CRISIL further said that favourable input costs may provide corporate India some respite.