Poll-driven spending curbs to mute India Inc's Q1 revenue growth: Report

A slowdown in government spending during the elections and the onset of the monsoons are likely to weigh down on growth not just in the first quarter but across the first half
Image used for representational purpose.
Image used for representational purpose.(Express Illustration)

MUMBAI: The enforcement of the model code of conduct during the just-concluded parliamentary elections and the resultant curtailment in government spending along with the onset of the monsoons are set to impact the revenue growth of India Inc in the first half of the current fiscal, says a report.

The sequential revenue growth for India Inc is set to taper off in the June quarter, negating the gains from the revival in rural demand. A slowdown in government spending during the parliamentary elections and the onset of the monsoons are likely to weigh down on growth not just in the first quarter but across the first half, Icra Ratings has said in a note without quantifying the impact.

However, the agency expects companies to maintain their operating profit margin in the range of 15-18 percent, despite the expected tapering off in revenue growth, as raw material costs are steady. This will help them maintain stable credit metrics in Q1 with the interest coverage ratio in the range of 4.7-5x, as against 4.9x in Q4FY24.

The global economic scenario and the intensity of the monsoons will be the key monitorables for the near-term, the agency added.

According to Kinjal Shah, a senior vice-president at the agency, the 5 percent on-year and 6.3 percent sequential revenue growth for corporate India in Q4FY24 was supported by healthy demand in consumer-oriented sectors like airlines, hotels, automotive and consumer goods. In addition, growth in power and construction sectors was also strong.

The annualized revenue expansion was curtailed to some extent by a decline in realisation levels amid softening input costs for sectors like fertilisers and chemicals, which also faced a demand slowdown due to inventory destocking.

Growth is expected to marginally slow down in Q1 on a sequential basis and due to a relatively high base, amidst a perceived temporary pause in the infrastructural activities for a major part of Q1 due to the general elections and the dependency of rural demand on the monsoons.

The agency’s analysis of the Q4 performance of 558 listed companies (excluding financial sector entities) shows a likely improvement in operating margins to the tune of 92 bps to 17.2 percent on-year, mainly because of the softening in commodity prices and the benefits of operating leverage. However, on a sequential basis, the operating margins are likely to be flat, he added.

Sectors like auto, power, pharmaceuticals and metals & mining saw improvement in operating margins on the back of gradual price hikes and softening of input costs. However, some others like chemicals and fertilisers saw their margins contracting due to weak demand.

The interest coverage ratio improved marginally to 4.9x in Q4FY24 from 4.8x in Q4FY23 and the interest coverage is expected to remain largely stable in the near-term. Even their total debt/operating profit levels remains relatively high at 3.3x in FY24 as against 3.7x in FY23.

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