India Inc's top-line growth to skid to seven-quarter low in Q4 FY15: CRISIL Report

India Inc.'s revenue growth is likely to slip to a seven-quarter low in the three months through March due to slower increase in investment and sliding global commodity prices, according to CRISIL Research.

A study of 600 companies by CRISIL Research estimated that the top line will grow 2.5 per cent on a year-on-year basis in the January-March quarter of 2014/15. The study excluded banking, financial services and insurance, and oil and gas companies.

"The year started on a promising note, with revenue growing by 12.8 per cent in Q1FY15 [April-June]. However, growth has decelerated in subsequent quarters with Q4 [January-March] likely to show the lowest growth... In aggregate, revenue growth for corporate India is likely to end up at seven per cent in FY15," said Prasad Koparkar, Senior Director, CRISIL Research.

According to the report, export-oriented sectors have performed particularly well in the preceding quarters and reported strong year-on-year growth due to a slight rebound in demand in key markets and currency tailwinds. However, in the December 2014 quarter, the rupee appreciated marginally by 0.2 per cent against the dollar on year-on-year basis; so there were no gains on the currency front. Revenue growth of the IT sector is expected to be around 11 to 13 per cent, mainly due to rise in volumes, as the sector benefits from a weak rupee. Revenues of the pharmaceutical industry are expected to rise by 10 per cent. In the textiles industry, cotton spinners are likely to report a 9 per cent revenue decline due to lower export demand from China and pricing pressure.

Readymade garment manufacturers, on the other hand, are expected to do better, reporting 4 per cent revenue growth, mainly because of healthy sales growth in both exports and domestic markets. The swift slide in global commodity prices will put pressure on the top lines of steel, petrochemicals, and commodity chemical producers during the quarter.

The steel industry is expected to see a 10-11 per cent year-on-year decline in revenues. On account of a 28 per cent drop in crude oil prices, revenue growth of the petrochemicals industry is expected to decline by 20-22 per cent. Similarly, revenues of the commodity chemicals sector are projected to decline by 18-19 per cent. The construction and capital goods sectors' will remain sluggish due to lower order backlog and slow project execution. "Despite pressure on top line, margins of petrochemical players will widen by 125-150 bps (basis points) due to improvement in polyester feedstock spreads," said Ajay Srinivasan, Director, CRISIL Research. The automobile sector is forecast to grow at a slower pace of 6 per cent mainly due to slower growth in exports and in the two-wheelers segment. Revenues of the telecom and consumer goods sectors are expected to grow at 11 per cent and 8-9 per cent, respectively. The power sector is expected to grow at 4-6 per cent due to increase in power generation and capacity additions mainly by Adani Power, Reliance Power and GMR Infrastructure.

CRISIL Research expects aggregate margins on earnings before interest, tax, depreciation and amortisation (EBITDA) to improve by 50-80 basis points year-on-year in the fourth quarter of 2014/15. Sectors such as steel, capital goods, fertilisers, IT services and pharmaceutical will witness a decline in their EBITDA margin wheras sectors like telecom, cement, and consumer goods are likely to outperform. The telecom services sector will increase its EBITDA margins by 175-200 basis points year-on-year, mainly driven by data revenues. In case of petrochemicals, EBITDA margins are expected to increase by 100-150 basis points. EBITDA margins of the automobile sector are expected to increase by only 84 basis points. IT services and pharmaceuticals sector are forecasted to see a decline in their EBITDA margins by 100 basis points. The higher R&D as well as US FDA remediation will impact margins of drug makers. The power generation sector's EBITDA margins are also expected to decline by 40-60 basis points, due mainly to implementation of the central power regulator's new tariff determination guidelines that are expected to lower incentives and reduce efficiency gains through tighter operating norms.

In a separate analysis of the banking sector, CRISIL Research suggests that the sector will see growth of 10-12 per cent year-on-year in its overall income, slightly higher than the preceding quarter. Credit growth is expected to rise amidst higher economic expansion. The report also suggests that high gross non-performing assets will restrict the banking sector's net interest income growth in the range of 5-7 per cent year-on-year.