India Inc's revenue is expected to rise to a two-year: Crisil Research
08 July 2016
India Inc's revenue is expected to rise to a two-year high of 8 per cent on a year-on-year basis in the quarter ended 30 June 2016, according to a study by Crisil Research.
The first sign of topline growth shifting to a higher trajectory was seen in the March quarter, when it surged to 6.5 per cent from a drab 1-3 per cent seen in each of the five quarters preceding.
To be sure, revenue growth remains significantly lower than the long-term average of 12-15 per cent. However, in real terms – or adjusted for inflation – the picture looks brighter because topline growth is likely to be higher than the average for the last 4 years.
Earnings before interest, tax, depreciation and amortisation (Ebidta) is seen up about 13 per cent, slower than the 17 per cent jump seen in the March quarter, but well above 2.5 per cent growth in June 2015, it added.
There could also be some surprises in accounting treatment because companies with a net worth of over Rs500 crore would be migrating to Indian Accounting Standards from the June 2016 quarter.
The analysis is based on 600 companies (excluding financials and oil & gas) that account for about 70 per cent of the market capitalisation of the National Stock Exchange.
From an emerging market perspective, this means domestic companies are growing way faster than peers in China, South Korea, Taiwan and South Africa. The contrast couldn't have been starker; while the financial performance of India Inc is improving, aggregate revenues and Ebitda of companies that are part of the MSCI Emerging Market Index have been swinging the other way, having declined in each of the past six quarters.
And to sustain the higher earnings trajectory, three domestic tailwinds are necessary - a normal and well distributed monsoon, a gradual revival in investment sentiment, and ever-increasing job creation. Global factors are unlikely to be supportive, and risks have risen further after Britain decided to leave the European Union, or the so-called Brexit.
''Urban domestic plays and some export-oriented sectors are expected to drive topline growth this time. We expect IT services industry to report 15 per cent revenue growth on the back of volume growth and the 5 per cent depreciation in the rupee against the dollar. Brexit headwinds though will cast some shadow on future growth of the sector. In pharmaceuticals, new launches from a strong product pipeline will propel 15 per cent growth,'' said Prasad Koparkar, Senior Director at CRISIL Research.
''Among consumption-oriented sectors, organised retailers, consumer durables and two-wheeler makers are likely to do well, fuelled by strong demand in urban areas. But for FMCGs, growth is likely to be tepid dragged by insipid demand in hinterland, from where half of revenue comes,'' he added.
Among investment-linked sectors, cement producers are likely to report 6-7 per cent growth in volume, indicating some benefits from pick up in government aided construction activity. But revenue growth would be just 1-2 per cent as prices are down in most regions except in north and central India.
IT companies could see a 40 BPS contraction in EBIDTA margin due to pressure on blended realisation, stagnant utilisation rates and higher investment in the digital space. Drug makers, too, would be under pressure after spending on plant remediation activities following regulatory scrutiny, higher R&D expenses (for large players), and high-base effect of last year (for mid-sized players).
Tyre manufacturers face about 250 BPS margin deflation because realisations have slumped amid rising competition.