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Q2 Revenues Seen Up 7%; Second-Best In 6 Quarters

Monday, October 10, 2016
By Dominic Rebello

Base effect, tailwind from low commodity prices to provide fillip, says CRISIL Research. Incidentally, the past 12 months have seen companies from the automobiles, IT services, pharmaceuticals, power, and telecom services sectors outperform in terms of revenue growth.

Revenues of companies in key sectors -- excluding BFSI and oil companies -- to rise 7% (on-year) in the second quarter of the current fiscal, estimates CRISIL Research. That would be the second-best showing in six quarters. Ebidta, or operating margin, is seen up 50 basis points (bps).

The fillip, says Cirisil “comes from low-base effect (revenue growth in the corresponding quarter last fiscal was stagnant), improvement in urban and rural consumption, and low commodity prices”.

The analysis is based on 360 companies (excluding financials and oil companies) that account for ~46% of the market capitalisation of the National Stock Exchange.

Aggregate revenue growth for these companies in four of the past six quarters hovered between 0% and 2%. In the first quarter of this fiscal, it was 6% compared with 9% in the last quarter of fiscal 2016. Ebidta margin had risen 70bps on-year in the first quarter.

The past 12 months have seen companies from the automobiles, IT services, pharmaceuticals, power, and telecom services sectors outperform in terms of revenue growth.

“In the second quarter, we expect sectors focused on urban and rural consumption such as automobiles and retail, along with pharmaceuticals and IT services, to record double-digit revenue growth. We see automobiles reporting 13% growth riding on new launches and healthy rural demand following a good monsoon. Retail is expected to grow 12% on the back of improvement in disposable incomes and India’s economic outlook, while pharmaceuticals, driven by new launches in the US, should see 13% growth. IT services sector is expected to grow 10%, slower than in the past, aided by volume and rupee depreciation,” said  Prasad Koparkar, Senior Director, CRISIL Research

Consumer discretionary sectors such as airlines, cars and two-wheelers and retail are expected to grow faster than industry because of improved volumes. Cars and two-wheelers are expected to grow 16-18% and 13-15%, respectively, due to new model launches and improved demand, including rural. Boosted by same-store sales growth and store additions, revenues of retailers are expected to increase 12% during the festive season. The aggregate revenue of airlines is seen up 7-9% on strong growth in domestic passenger traffic.

In the first quarter, operating margins had improved on lower input prices. Global prices of coking coal and domestic prices of iron ore fine were down 24% and 7%, respectively, which helped the steel products industry improve operating margins by 500 bps. For power companies, cheaper fuel lifted operating margins by 200 bps.

Says Binaifer Jehani, Director, CRISIL Research: “During the second quarter, automobiles, steel products, telecom services and FMCG companies are expected to improve their Ebidta margins. For steel products makers, it is seen up 150 bps riding on a 2-4% increase in prices. For auto makers, we see it rising 125 bps. For FMCGs, it should rise 80 bps with input costs, especially crude oil and copra prices, declining.”

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