India Inc poised for a blockbuster Q4 earnings show

All eyes are set on the final act of corporates in fiscal 2021. India Inc is expected to deliver a strong performance in March quarter, with a year-on-year (y-o-y) revenue growth of 15-17 per cent to Rs 6.9 lakh crore, indicates a CRISIL Research estimate. The double-digit growth comes after eight quarters of either decline or single-digit growth.

With the visible recovery in the second half of fiscal 2021, overall revenue for the sample may be a mere 0.5 per cent lower compared with fiscal 2020, supported by larger players displaying more resilience than mid-corporate and smaller players in dealing with the impact of pandemic. The estimates are based on an analysis of nearly 300 companies, which account for 55-60 per cent of NSE's market capitalisation (excluding financial services and oil companies).

"The robust revenue growth rides on a low base of the corresponding quarter a year ago, besides higher government capital expenditure, and higher realisations amid a commodity upcycle, among others," the report said.

A closer look at the revenue breakup indicates approximately 50 per cent of the recovery is contributed by three key verticals -- automobiles, IT services and construction. Construction-linked sectors such as steel and cement are estimated to have seen revenue rise of 45-50 per cent and 17-18 per cent on-year, respectively, buoyed by higher realisations and volumes. Domestic prices of flat steel and cement are estimated to have increased around 32 per cent and 2 per cent on a yearly basis, respectively, supporting revenue growth in the quarter.

Nonetheless, the picture is not rosy across verticals. A cloud of uncertainty continues to loom over consumer discretionary services. Revenue for players in sectors such as airline services is estimated to drop around 30 per cent y-o-y amid social distancing and cut in discretionary expenses, especially travel budgets. Similarly, revenue for players in media and entertainment is also expected to drop 10 per cent due to lower advertisement spends and subscriptions, the report highlighted. That said, a lower share of such sectors in the top 300 sectoral mix has muted the impact.

Meanwhile, earnings before interest, tax, depreciation and amortisation (EBITDA) is estimated to be 28-30 per cent higher on yearly basis for the fourth quarter, significantly better than the revenue growth. Demand recovery, higher realisations and unprecedented fixed-cost reduction measures have enabled a healthy rise in EBITDA margins for six quarters now.

However, rising commodity prices will lead to a decline in margins on a sequential basis. Key raw materials -- steel, aluminium, natural rubber and crude oil -- saw double-digit increase from March 2020 levels. Nevertheless, the low base of last year is expected to take EBITDA margins over 200 bps higher on-year.

Sequentially, an increase in commodity prices should result in contraction of margins across key sectors. Margins in steel, cement and pharmaceuticals sectors, which together account for nearly 30 per cent of aggregate EBITDA profits, are expected to contract by 380 bps, 230 bps and 160 bps, respectively, on a sequential basis.

Despite this, fiscal 2021 would see EBITDA profits rise 12-13 per cent on-year over flat revenues, the report added. EBITDA margins would reach a decade high of 22.2 per cent, led by low commodity prices in the first half and fixed-cost reduction initiatives across companies for the year.

As COVID-19 cases rise with the second wave, states are likely to mount partial lockdowns, keeping demand recovery uncertain in the near term. Newer strains of the virus, scale of vaccinations and subsequent revival in demand would be among the key monitorables for fiscal 2022.

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