Base effect to limit revenue growth in Q4 FY14-Crisil Research

Recovery in industrial production, exports to boost growth this fiscal

CRISIL Research expects revenue growth for India Inc (excluding financial services and oil companies) to come in at a subdued 7-9% year on year for the quarter ended March (Q4 FY14), reversing the trend seen over the previous two quarters.

Export-oriented sectors will continue to witness robust revenue growth, led by rupee depreciation, while in infrastructure- and investment-linked sectors, growth will be subdued owing to a weak investment climate.

Says Prasad Koparkar, Senior Director, CRISIL Research: Revenue growth rebounded in the second and third quarters of last fiscal, averaging over 10% year on year. However, growth in the fourth quarter will slow to 7-9%. This is mainly due to the high base of the corresponding quarter last year for sectors such as capital goods, real estate, cars & utility vehicles, and one-time benefits such as recovery of past dues and higher incentives in Q4 FY13 for power and coal, respectively.

Overall revenue growth will continue to be supported by sectors such as IT, pharmaceuticals, readymade garments and cotton yarn, which benefit from currency tailwinds. Despite its recent strengthening, the rupee's average exchange rate during the fourth quarter was nearly 14% weaker year on year.

Additionally, growth momentum in consumption-linked sectors such as telecom, retail and media, which have seen a recovery over the last 3 quarters, will sustain.

EBITDA margins for the quarter are likely to remain unchanged at 17-17.5% given the continued weakness in investment-linked sectors on account of delays in land acquisition, clearances and project execution. But export-led sectors, together with telecom, should see their margins expand 150-200 basis points (1.5-2 percentage points). Net profit margins are expected to be under pressure in Q4 FY14, particularly for construction, real estate, metals and capital goods sectors.

Says Mukesh Agarwal, President, CRISIL Research: Revenue growth and operating profitability have bottomed out and will now gradually improve, assuming that a stable government will be in place post- election. Revival of stalled projects post the policy initiatives undertaken over the last 12-18 months, recovery in industrial output due to increase in demand and higher growth in exports led by improvement in global GDP will enhance revenue growth to 11-12% in 2014-15. EBITDA margins are expected to expand 100 bps, led by a decline in prices of key commodities such as metals, oil and coal.

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