CHENNAI: Corporate earnings in the second quarter signal that the worst phase of India Inc may be over. The numbers clearly show signs of stability, reversing the deceleration in aggregate earnings growth numbers.
According to ratings firm ICRA, the aggregate revenues of 485 companies grew by 4.2 per cent in Q2 FY18 compared to 6.7 per cent in Q1 of FY18, despite many sectors reporting sequential improvement. The aggregate Ebitda margins of the corporate sector reverted to 17.7 per cent, up 170 bps sequentially and 20 bps on a year-on-year basis, aided primarily by higher volume growth.
Most consumer-oriented sectors including automobiles, FMCG, consumer durables and retail reported better performance on the back of improved consumer demand and fairly stable input material cost. Also, the gradual recovery in rural demand which helped companies in these sectors was the one aspect that stood out, said Subrata Ray, senior group vice-president, corporate sector ratings at Icra.
The impact was highly visible from tractor sales, which surged 16 per cent in the eight months of FY18 driven by strong rabi-led cash flows, favourable impact of farm loan waiver in select states and replacement-driven demand in north India. Entry-level motorccle segment, another barometer of rural trend, also showed positive trend during the current fiscal after the dismal performance over the past few years, noted Icra. “The outlook remains promising in view of increase in minimum support price, and higher agricultural output,” Icra noted.
However, sector-specific dynamics such as increasing competitive pressure in the telecom sector, regulatory hurdles in pharmaceuticals and recovery in commodity prices continued to restrain earnings growth. In contrast, commodity-oriented sectors such as cement companies have reported higher aggregate Ebitda margins driven by higher realisations. Some leading players outperformed the industry by ramping-up capacity and consolidation of acquired assets.
Now, all eyes will be on GDP estimates. The government’s first advanced GDP estimates for this fiscal, to be released by the Central Statistics Office on Friday, will give indications as to whether the economy has turned the corner.