Indian companies revenue likely grew 18-20% on-year in second quarter : CRISIL

Indian companies revenue likely grew 18-20% on-year in second quarter : CRISIL

Increased commodity prices and continued demand for consumer discretionary products likely increased corporate revenue 18-20% year on year to Rs 8.2 lakh crore in the second quarter of this fiscal, according to a CRISIL Research study of 300 companies (excluding financial services and oil) that account for 55-60% of the National Stock Exchange's market capitalisation.

Consumer discretionary products such as autos are anticipated to have increased 19-21% year over year, boosted by increased realisations and volume. Construction-related sectors are anticipated to have expanded 22-25% year over year, aided by the low base effect of the previous fiscal year.

Overall revenue growth would be fueled mostly by price increases associated with more expensive commodities. Volume growth on a year-over-year basis would be primarily in the single digits across all important segments except commercial vehicles. To be sure, growth pace would have slowed in comparison to the first quarter's 47% year-on-year increase.

Overall revenue is anticipated to have increased by 8-10% sequentially.

Consumer discretionary product revenue is estimated to have increased 23-25% sequentially following the first quarter's impact of the second wave of the Covid-19 outbreak.

Construction-related sectors are predicted to have risen between 3% and 5% as seasonal slowdown impacted execution and volume growth.

The vehicle sector's revenue is anticipated to have increased by 27-30% sequentially, owing to a rise in realisations. This is predicted to drive growth in ancillary categories such as auto components and tyres, which are expected to have expanded by a healthy 12-14% and 6-10% on-quarter, respectively.

The sample set's overall revenue is projected to have increased to Rs 15.8 lakh crore in the first half of this fiscal year, up 30% to 32% year on year.

"Elevated commodity prices and solid realisations would result in improved revenue performance across sectors in the second quarter," says Hetal Gandhi, Director, CRISIL Research. As many as 24 of the 40 industries covered by these 300 companies are anticipated to have expanded by more than 20% year over year. However, eliminating commodities industries such as steel and aluminium, overall revenue growth would be a notch lower at 15-17%. Sequentially, it could be much lower, at 8-10%, with export-related sectors like as information technology and pharmaceuticals proving to be drags, although increasing at a steady 4-6%."

The slowdown in sales growth is projected to have trickled down to profits before interest, taxes, depreciation, and amortisation (Ebitda), which is expected to be up 5-7% sequentially on average. On a year-over-year basis, that would be 24–27% higher due to the low-base impact.

As a result, operating profitability, as measured by the Ebitda margin, would have contracted by 40-80 basis points on-quarter due to the impossibility of fully passing through the substantial increase in raw material costs.

Almost half of the 40 sectors are predicted to see a sequential decline in Ebitda margins as input prices continue to rise. While overall margins may have continued to grow on-year to 100-120 basis points, they would have shrunk 30-70 basis points excluding companies in the aluminium and steel products industries."

Companies' capacity to pass on the increase in commodity prices is constrained, which limits the increase in margins. Crude oil prices increased 71% year over year in the second quarter, while steel costs increased 47%. Energy and fuel costs have increased by more than twofold due to a twofold increase in coal prices and a more than fourfold increase in spot gas prices. These will exacerbate the situation, resulting in margin contraction in the power and cement sectors," Hetal Gandhi continues.

For the first half of current fiscal year, the overall Ebitda margin (for 300 companies) is expected to be 22-24%, up 200-250 basis points year on year, aided by a 380 basis point increase in the first quarter.