Broad-based recovery in earnings unlikely in FY'18

Broad-based recovery in earnings for the private sector in the current fiscal is unlikely, as fall in operating performance of weak entities would drag down the overall earnings before interest, tax, depreciation and amortisation (EBITDA) growth, says a India Ratings report.
The report also said that the EBITDA growth for the fiscal ended March 31, 2017 would be lower than its previous estimates of 5-6 per cent owing to demonetisation measure.
However, it noted that the impact of note-ban is likely to be transitory on the corporate performance.
"We not expect a broad-based recovery in 2017-18, given decelerating EBITDA growth of corporates with weak operating performance," India Ratings (Ind-Ra) said.

"Corporates with strong financial profiles are likely to witness a marginal positive EBITDA growth in 2017-18 compared with corporates with weak financial profiles, which are likely to witness a significant decline in EBITDA growth in the current fiscal," it added.
Ind-Ra estimates the earnings of top 365 corporate borrowers (excluding public sector units and banking and financial services providers) to grow by 9-12 per cent in the current fiscal -- highest level since 2014-15, helped by improving consumption and a recovery in exports.

Besides, the number of corporates showing an improvement in operating performance is likely to be higher in the current fiscal compared to 2016-17, it added.

Sector-wise, the EBITDA growth of capital-intensive and commodity-linked sectors, including infrastructure and power is likely to decelerate in the current financial year.
While the steel sector registered positive EBITDA growth for nine months ended 2016-17, the profitability of this
industry is likely to remain under pressure, as companies ability to fully pass input prices to customers would be limited owing to muted demand and over capacity.
"In the oil and gas sector, downstream companies could witness a moderation in EBITDA margin in FY18 on an increase in crude prices," the report said.
"On the other hand, upstream companies are likely to benefit from benign prices. However, the agency expects consumption- and export-driven sectors such as pharmaceutical to register positive EBITDA growth for FY18," it added.

Further, with a stable outlook, the auto sector's EBITDA growth in the current fiscal is likely to be moderate.