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As the earnings season starts with Tata Consultancy Services declaring their results after market hours on Friday, Corporate India is likely to report a revenue increase of 18-20% to Rs 8.2 lakh crore in Jul-Sep quarter, compared to the same period last year, according to rating agency Crisil.
Crisil said the estimates are based on the analysis of 300 companies on the National Stock Exchange that account for 55-60% of the market capitalisation. These 300 companies does not include financial services and oil companies.
Overall revenue of the sample of 300 companies is expected to have risen to about Rs 15.8 lakh crore in the first half of this fiscal, a gain of 30-32% year-on-year.
The rating agency said that the higher revenue growth was driven by continued recovery in demand for consumer discretionary products and dearer commodity prices.
Sales from consumer discretionary items like automobiles is expected to have risen by 19-21% year-on-year, aided by higher realisations and volume. Sequentially, revenue from consumer discretionary products is expected to have risen 23-25% as demand was affected by the severe second wave of the pandemic during the first quarter.
Automobiles sector’s turnover is estimated to have swelled 27-30% sequentially, led by an increase in realisations. This is expected to have a positive rub-off effect on growth for ancillary segments such as auto components and tyres. Auto component makers are likely to have grown by 12-14% and Tyre industry is expected to have risen by 6-10% quarter-on-quarter.
Sectors which are linked to construction are estimated to have increased by 22-25% compared to the corresponding period last year, due to low-base effect of last fiscal. However, the sectors’ growth is likely to have a moderate growth of 3-5% sequentially due to seasonal weakness that slowed down execution and volume growth.
Overall volume growth year-on-year is forecasted to be in single digit across key segments except commercial vehicles, while total revenue on a sequential basis is likely to have grown by 8-10%.
Sequentially, the overall revenue growth could have slowed down to 8-10%, as export-linked sectors such as IT services and pharmaceuticals weighed on the overall revenue, despite growing at a stable 4-6%.
The 300 companies represent 40 sectors and out of it, 24 sectors are estimated to have grown by more than 20% year-on-year. But overall revenue growth would be slightly lower at 15-17% excluding commodity sectors such as steel and aluminium.
The moderate growth in revenue is expected to have trickled down to earnings before interest, tax, depreciation, and amortisation (Ebitda), which is estimated to have increased by an average 5-7% sequentially. However, on an yearly basis, Ebitda margin is estimated to be 24-27% higher because of the low-base effect.
As a result, operating profitability margin, i.e., Ebitda margin, would have narrowed by 40-80 basis points quarter-on-quarter as companies would have found it difficult to pass on the increase in raw material cost, according to Crisil. Almost half of the 40 sectors are estimated to register a fall in Ebitda margin sequentially amid rising input costs.
“The ability of companies to pass on the surge in commodity prices is limited it would have put a cap on higher margins. Crude oil prices were up approximately 71% in the second quarter year-on-year, and steel rose by about 47%. Power and fuel expenses rose as coal prices doubled and over 4x higher spot gas prices. These would add to the woes, leading to margin contraction in the power and cement sectors,” said Hetal Gandhi, Director, CRISIL Research.
For the first half of fiscal 2022, overall Ebitda margin of the 300 companies is estimated at 22-24%, expanding by 200-250 bps compared to same period last year.