As Corporate India has started reporting its second quarter earnings, revenue of Indian companies is expected to rise about 15% year-on-year to Rs 10.2 lakh crore in the second quarter of this fiscal, according to CRISIL rating agency. The rise comes on the back of a combination of factors such as moderate price hikes and steady rise in volumes.
However, profitability is expected to decline by 300 basis points (bps) due to elevated commodity prices.
CRISIL Research said that 47 sectors were tracked and nearly half of them are estimated to have outpaced overall revenue growth during the quarter, with key sectors within consumer discretionary services registering maximum on-year growth. CRISIL analysed over 300 companies, excluding those in the financial services, and oil and gas sectors.
“In absolute terms, of the 47 sectors analysed in the first half of this fiscal, about 94% are estimated to have surpassed the pre-pandemic level in both, revenue and absolute profit,” said Jignesh Surti, Manager, CRISIL Research.
“Revenue of key sectors linked to consumer discretionary services and consumer staple services rebounded 155-160%, while absolute profit growing sharply by 4.6 and 2.4 times, respectively,” added Surti.
Similarly, consumer discretionary products, which accounted for almost 20% of overall revenue, logged 25% on-year growth and the maximum contribution was from automobile industry, aided by healthy volume, favourable product mix, and price hikes.
Meanwhile, revenue of IT firms is likely to have increased 15-17% YoY, aided by faster adoption of digital platforms across segments and higher spending for modernisation of businesses.
The rating agency noted that the underperformance of the remaining sectors compared with overall growth was largely broad-based across the construction-linked, consumer staples, and industrial commodities verticals.
The construction-linked vertical, which accounted for 16% of overall revenue, grew only 5% on-year. Revenue from steel sector declined 3% on-year after its revenue grew over the past eight quarters. The decline in revenue was due to correction in flat steel prices to the extent of 15% on-year, and moderate volume growth amid duties levied on exports across finished-steel categories.
Corporate profitability contracted about 300 basis points (bps) on-year in the second quarter of fiscal 2023, making it the the fourth consecutive quarter of on-year decline. The margin contracted slightly on a quarterly basis.
Ebitda margins of about 70% of the 47 sectors tracked by CRISIL Research shrunk on-year. The steep margin decline was in construction-linked sectors, at over than 1,000 bps on-year, largely due to elevated input costs and delay in passing the high input costs to customers. Among these sectors, Ebitda margin in steel products is likely to have contracted by about 1,500 bps on-year due to elevated coking coal prices and lower realisations amid drop in flat steel prices as well as limited exports.
CRISIL Research’s Associate Director, Sehul Bhatt, said, “Rising revenue momentum is not translating into profit margin proportionately as commodity prices like coking coal and crude oil remain elevated on-year.” Bhatt added that higher commodity prices weighed on corporate profits and absolute Ebitda profit remained flat during the quarter. Meanwhile, absolute Ebitda profit is expected to be steady on-year but drop nearly 4% sequentially.
In terms of post-pandemic recovery in the first half, aggregate revenue is estimated to have reached 146% of the pre-pandemic level (first half of fiscal 2019) and aggregate profit to 155%, though profitability remains a concern, CRISIL said in its report. For the whole of this fiscal, revenue is expected to grow 12-18% on-year following continued recovery in volume and moderately higher realisations.