India Inc's revenue growth to recover in Q1: CRISIL

CRISIL Research pegs FY15 sales growth at 11-12 per cent

India Inc's revenue growth for the June quarter is likely to be 9-11 per cent, aided by a weak rupee and volume growth in key overseas markets and led by IT services and pharmaceutical companies, says CRISIL Research.

As in the previous quarters, revenue growth will be led by export-oriented sectors with select domestic consumption plays such as fast-moving consumer goods (FMCG), passenger vehicles and two-wheelers adding to the growth.

The June quarter year-on-year (y-o-y) growth number signals a marginal recovery from the March quarter growth of 8.4 per cent and is in line with the average 10 per cent growth recorded in the September and December quarters.

BETTER SHOW?

• 9-11% India Inc’s estimated revenue growth for Q1
• 17% India Inc's expected Ebitda margins, a stable show over y-o-y
• 75-100 bps Estimated expansion in Ebitda margins of FMCG sector
• 75-100 bps Rise in telecom services sector margins as estimated by CRISIL
• 200 bps Expected fall in margins of cement sector
• 19-21% Estimated rise in the rupee revenues of large IT players
• 11-12%  Rise in total income of public-sector banks
• 14-15% Expected increase in total income of private banks

The year-ago quarter (June 2013) revenue growth was below five per cent. The result expectations cover 600 companies, excluding oil and gas and financial services players. While a below-normal monsoon could play spoilsport in FY15, recovery in industrial output, resumption of stalled projects, and improvement in consumer sentiment would help revenue growth touch 11-12 per cent.

Among the key sectors that are expected to outperform are export-oriented ones such as IT and pharma with revenue growth of 16-20 per cent, says Mukesh Agarwal, president of CRISIL Research. According to him, a currency base effect due to the rupee remaining six per cent below the levels seen in the June quarter of 2014, despite its recent appreciation and a strong volume growth in exports will help achieve this growth.

Among the under-performers are infrastructure and investment-linked sectors such as construction, capital goods and cement, which will lag due to the slow project execution. While revenues of cotton spinners are likely to shrink with demand from China falling, tractor makers might be dragged by a considerable slowdown in domestic sales volumes. Revenues of real estate developers will continue to be slow due to sluggish sales and new launches.

Notwithstanding a marginal recovery in revenue, CRISIL Research expects India Inc's earnings before interest, taxes, depreciation, and amortisation (Ebitda) margins to remain stable y-o-y at 17 per cent. IT and ready-made garments sectors will continue to benefit from a weak rupee, while margin pressure will confront sectors such as cement due to higher input costs and power generation after the implementation of the new tariff determination guidelines of the Central Electricity Regulatory Commission.

Judicious pricing and cost control (with respect to employee benefits and overheads) would help the FMCG sector offset an expected increase in raw material (mainly palm oil) costs and register a 75-100 basis-point expansion in Ebitda margins. Telecom services sector margins are estimated to rise 75-100 basis points as subscriber acquisition and marketing costs are expected to remain under control. However, this will be partly offset by higher network operating costs. Ebitda margins of the cement sector are forecast to fall by about 200 basis points mainly due to continued cost escalation and weak volumes.

For the IT sector, rupee depreciation (estimated at six or seven per cent y-o-y) and stable volume growth (15 per cent y-o-y) could lead to 19-21 per cent increase in the rupee revenues of large IT players. Billing rates (realisations) are likely to fall one or two per cent on a y-o-y basis, estimates CRISIL Research.

A weak rupee, along with higher utilisation, is likely to drive Ebitda margin expansion of 140 basis points for these companies on a y-o-y basis. Sequentially, Ebitda margins are likely to contract 150 basis points due to rupee appreciation and 8-10 per cent wage hike. For FY15, the IT biggies are likely to post 16-18 per cent growth in dollar revenues on the back of healthy volumes.