Companies are expected to report comparatively lower revenue and profit growth for the October-December 2018 quarter, says a Crisil report.
Overall revenue growth will be constrained by a demand slowdown in automobiles, sugar, aluminium and telecom services. Automobiles revenue is expected to have been impacted by a rise in ownership costs, while the other sectors would bear the impact of lower realisations and competitive pressures, the rating agency said.
Even with a healthy top line growth, India Inc is expected to face dampened profitability at the operating level, with rising input prices building pressure on the cost structure, Crisil said.
The forecast is based on Crisil Research’s analysis of 362 companies, which account for 67 per cent of the market capitalisation of the National Stock Exchange, excluding banking, financial services and insurance (BFSI) and oil sectors.
“Corporate revenue growth is expected to print at 12-13 per cent on-year for the third quarter of this fiscal ended December 31, 2018, or 400-500 basis points lower than the 17 per cent on average in the first two quarters. Growth in operating profit (earnings before interest, tax, depreciation and amortisation) is also expected to print lower, at just below 10 per cent on-year compared with 15 per cent over the three quarters preceding,” Crisil said.
India Inc is expected to report a margin contraction of 50 basis points (bps) on-year for the quarter amid rising raw material costs across sectors, according to the rating agency.
Prasad Koparkar, senior director, Crisil Research, said, “Commodity and infrastructure-linked sectors are expected to support revenues for the quarter ended December. Steel, cement, natural gas and petrochemicals are expected to be driven by volume and realisation growth, while sectors such as construction and capital goods are expected to grow on a pickup in execution of key infrastructure-led government schemes.”
“In consumption, spending-led sectors such as airline services and retail, revenues will be supported by positive demand sentiment, while in export-oriented segments such as IT services and pharma, the boost would come from a weak rupee on a year on year basis,” Koparkar said.
Despite softening of commodity prices and a weakening of the rupee towards the end of Q3FY19, the prices of most common commodities remain high on-year. Having said that, full impact of the softening may be visible in the fourth quarter of this fiscal.
Rahul Prithiani, director, Crisil Research, said, “Domestic prices of coal, long steel, flat steel and aluminium are expected to have risen 13 per cent, 15 per cent, 18 per cent and 6 per cent, respectively, on-year in the third quarter. Additionally, oil prices are expected to print 10-11 per cent higher even as rupee depreciation would be around 11 per cent on-year.
“Limited ability to pass through increased input prices to end customers in sectors such as airlines, cement, retail and telecom due to competitive pressures and high sensitivity to price movements will also accentuate pressure on the margins,” Prithiani said.