India Inc's top line growth projected to halve in Q4, says CRISIL report

Forecast is based on CRISIL analysis of 354 firms accounting for 67% of market capitalisation of NSE

Rating agency CRISIL expects a sharp slowdown in India Inc’s top line growth during the fourth quarter, driven by lower commodity prices. According to the rating agency, recent decline in prices will translate into lower prices for commodity producers, leading to a moderation in overall top line growth.

CRISIL Research expects 8 to 9 per cent year-on-year (YoY) revenue growth for corporate, ex-financials and energy in the fourth quarter of fiscal 2019 against an average growth of around 16.5 per cent during the first three quarters of FY19. (See chart)

The forecast is based on CRISIL Research’s analysis of 354 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.

For a much larger sample of 1,991 companies covered by Business Standard — financials and energy — net sales were up 13.5 per cent YoY during the April-December 2018 period against 7.6 per cent YoY growth during the corresponding period a year ago. In comparison, the operating profit of companies was 7 per cent during the period against 4.9 per cent YoY growth a year-ago period.

“Sectors linked to commodities and infrastructure had been supporting revenue growth for the past few quarters. However, this trend has reversed in the fiscal fourth quarter. Steel, aluminium, natural gas and petrochemicals are expected to witness lower realisations YoY, and sectors such as construction and capital goods are also likely to grow slower,” says Prasad Koparkar, senior director, CRISIL Research.

Besides consumer demand-driven sectors such as automobiles continues to reel under demand slowdown given higher cost of ownership and new axle norms, among other factors, he says.  

The decline in revenue growth, though, would be cushioned by other consumer sectors. 

Among others, retail has support from positive demand sentiment, while airline services stand to benefit from a sharp increase in domestic fares this quarter. 

Export-linked sectors such as information technology (IT) services and pharmaceuticals, on their part, stand to gain from a weakening in the rupee on a YoY basis, though it has strengthened quarter-on-quarter.

“Consumer segments such as airline services and organised retail are expected to grow in the range of 15-20 per cent YoY,” says CRISIL.

A decline in rupee, on the other hand, is likely to benefit export-driven sectors such as IT. 

“The rupee is expected to be 10 per cent weaker on year, which will boost export-oriented sectors such as IT services and pharmaceuticals that are projected to grow 17 per cent and 11 per cent on YoY basis.”

With lower top line growth, India Inc is staring at dampened profitability at the operating level. Growth in operating profit or earnings before interest, tax, depreciation and amortisation is expected to print lower, at 7 per cent YoY compared with an average 13 per cent YoY growth in the preceding three quarters.

The rating agency expects India Inc margin to contract up to 50 basis points (bps) on-year for the quarter as top line shrinks. On a quarter-on-quarter basis, though, margins will show an improvement of 70 bps because of lower input costs.

Growth in the fourth quarter comes on a high base as the year-ago period had seen healthy 12 per cent revenue growth against 7 per cent growth in the first half of the last financial year.