MUMBAI: With the first quarter earnings season almost over, an early analysis of the numbers so far declared shows an anemic 4-6% topline growth, down from 7% in the previous two quarters as power, coal, steel and IT services fared very badly, according to Crisil analysis report released on Monday.
The slowdown was driven by weak performance in the power, coal, steel, and IT services sectors, which together contribute a third of the revenue of over 600 companies analysed. These firms represent more than half the NSE’s market capitalisation.
Gross profit or earnings before interest, tax, depreciation and amortisation (Ebitda) rose 4% on-year. However, Ebitda margin likely fell 10-30 bps, weighed down by IT services, automobiles, fast-moving consumer goods and pharmaceuticals, Crisil said on Monday.
According to Pushan Sharma, a director with the rating agency, the early onset of monsoons and the lingering geopolitical uncertainties are expected to have materially impacted some sectors in the reporting quarter.
To wit, the rains-induced cooler summer culled demand for electricity. Consequently, the power sector revenue is seen declining 8%. Lower demand also pushed down spot prices of electricity, and led to a 2-3% lower demand for coal.
On the other hand, according to him, geopolitical uncertainties impacted the IT services sector, where revenue growth is seen flat due to project delays stemming from tariff worries, which led to a slowdown in activity. Similarly, the steel sector revenue is expected to have grown a moderate 1-3% due to planned maintenance shutdowns at major steel mills and a 2-4% decline in prices.
The auto sector revenue is foreseen rising 4% owing to higher retail sales, partially offset by high inventory. An increase in prices stemming from changes in product mix and higher export realisations likely helped revenue grow. Despite no significant increase in the budget allocation for the construction sector, its revenue is expected to climb up 6% as engineering, procurement and construction companies benefited from a low base effect caused by disruptions from the general elections in the first quarter of the past fiscal.
Five sectors—pharmaceuticals, telecom, organised retail, aluminium, and airline-- likely drove revenue growth, he added. Revenue for pharma companies is seen up 9-11% higher than corporate India’s revenue growth for the past 10 quarters, driven by strong export demand and a stable domestic market. Telecom revenue is expected to grow 12% fuelled by higher realisations of 11% due to costlier subscription plans and organised retail revenue likely rose 15-17% led by the value fashion and food and grocery segments.
The aluminium companies’ revenue has likely grown 23% due to higher domestic demand, higher domestic output after Bharat Aluminium Company’s expansion, more export opportunities from lower trade volatility between major economies, and an improvement in realisations due to a higher share of downstream products.
Airlines would have seen a 15% jump in topline driven by a 10-12% increase in volume driven by expanded supply due to fewer aircraft groundings and addition of new aircraft. Revenue expansion in the steel, cement and FMCG sectors was likely driven by volume growth of 7-9%, 3-4% and 4-5%, compared to an expected growth in realisation of 2-4%, 1-2% and 1-2%, respectively.
In the cement sector, a low base, the pre-monsoon construction spree and healthy domestic demand pushed volume higher, despite the shutdown of a few mills.A pick-up in rural demand supported the FMCG volume growth and drove revenue growth of 17%. Moderating food inflation, favourable monsoons and a good harvest season for rabi crops contributed to the rebound in rural demand.
According to Elizabeth Master, an associate director with the agency the top 10 sectors, which collectively account for over 70% of India Inc revenue, likely showed a mixed trend in the operating margins. While the margin rose for the power, cement, steel, telecom services, construction and aluminium sectors, it likely declined for IT services, automobiles, FMCG and pharmaceuticals.
The margin of the cement sector is expected to rise 350 bps on higher revenue and cost savings, while that of IT services, it fell 100 bps due to a demand slump and project deferrals due to US-driven tariff uncertainties and the absence of currency gains.
The margins in the FMCG sector likely declined 100 bps due to a combination of a high base, increased prices of commodities like edible oils and higher marketing expenses. Pharma margin is down 50-100 bps owing to pricing pressure on existing products.In contrast, steel sector margin is seen up 90-120 bps as input cost, pertaining to iron ore and coking coal, turned favourable, telecoms’ likely surged 290-320 bps due to lower operating expenses and aluminium companies’ has risen 250-300 bps due to a decline in intermediate cost and improved linkages for domestic smelters, which reduced their cost of electricity.