India Inc likely to double top-line growth to 12.1% in Q2FY19: Crisil

28 Sep 2018 Evaluate

The ratings agency Crisil in its latest report has said that India Inc is likely to double its revenue growth in the second quarter (Q2) of fiscal year 2018-19, mainly on the back of base effect. It said corporates are set to log in a top-line growth of 12.1% in the September quarter, up from 6.4% in the corresponding period last fiscal year, as steel makers are set to clock 80 basis points (bps) higher margins. However, it added that cost pressure is clearly rising across the board.

The report stated that aggregate operating margins would be up 5-10 bps in Q2FY19, but this would be mainly on the back of the performance of steelmakers. It also said that barring steel, the number is down by around 70 bps. The rating agency based on its reading of 365 companies, which excludes banking, financial services and insurance, and oil companies, said that if cost pressures continue to rise, the gradual ascent in operating margins seen from the fourth quarter of last fiscal can reverse. Crisil further said demand recovery is expected to be driven by discretionary, consumption-led sectors like airlines, automobiles, fast-moving consumer goods (FMCG) and retail. While automobiles are expected to see an 18% sales growth, airlines should see passenger traffic rise 16% on-year. Retail, FMCG and automobiles will benefit from the low-base effect caused by the rollout of GST in July last year and makers of steel and aluminum, and coal miners will benefit from improved sales, while cement companies will be helped by higher volumes.

The rating agency also said investment-linked sectors like housing and capital goods have also been supportive because of public spending. Higher crude prices and falling rupee are also skewing the input cost math for companies. It said higher oil and fall in rupee will impact the cost structures of most sectors. Additionally, domestic prices of coal, long steel, flat steel and aluminium are expected to rise 15, 14, 17 and 12%, respectively. That would add to the cost pressure for end-use sectors. Besides, airlines, automobiles, aluminium and cement companies will be the sectors bearing the brunt of rising cost of raw materials. However, margins for steel are expected to improve significantly due to an uptick in realisations. It also said that conversely, the rupee fall will prop revenue growth for export-linked sectors, especially IT and pharma.

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