India Inc Q2 Revenue Growth Slowest In Any Quarter In Last Four Years: Crisil

The expected September quarter revenue growth of Indian companies on a year-on-year basis is slowest in any quarter of the last four years, weighed by muted growth in construction, industrial commodities, and investment linked sectors.

India Inc is estimated to have experienced a slower revenue growth of 5-7% for the three months ended Sept. 30, 2024, according to Crisil's Market Intelligence and Analysis report. It noted that this is the slowest growth since September quarter of fiscal 2021.

The report has analysed over 400 companies across 47 sectors, excluding financial services and oil companies.

Construction, industrial commodities and investment-linked sectors, which account for 38% of its sample's revenue, grew only 1%, weighing down the overall growth in the second quarter, the ratings agency said.

The report pointed out several factors for this muted growth, including monsoon and weak pricing impacting the cement sector, an influx of cheap imports from China leading to a price decline for steel companies, as well as sluggish spending by the government after elections.

The agriculture sector, including fertilisers, which accounts for 2% of the sample set's revenue, also saw a 20-22% drop in revenue, according to the report.

Among the sectors which are likely to have reported a revenue growth in the said quarter were exports segment, which is 22% of the sample set, others vertical, which comprises 2% of the set, and consumer discretionary which comprises 36% of the sample.

Crisil estimates revenue from the ‘others’ vertical, including aluminium to clock 4% on-year growth and consumer discretionary, staple products and services to show 15% revenue growth during the quarter.

Revenue from exports likely grew by approximately 5% year-on-year. The segment also led to 70-90 bps expected year-on-year improvement in the profitability of the company in the September quarter.

September quarter's Ebitda margin likely stood at 21-21.5%, said Crisil, while noting that among the top 10 sectors, which account for nearly three-fourth of the total revenue, eight saw Ebitda margin expansion.

For aluminium manufacturers, better cost measurement and raw material security aided the margin, despite low realisations and for telecom services lower licence fees, reduced spectrum charges, and decreased network operating expenses helped, alongside steady revenue growth, said Crisil.

Moreover, while FMCG companies' margins likely remained flat, construction companies saw on-year margin expansion of around 100 bps in the second quarter.

For pharma sector, the ratings agency noted that top-line growth and lower raw material costs contributed to a margin expansion for formulation players. The bulk drugs segment was supported by a recovery in export demand and higher realisations, Crisil said.

In auto, margin expansion was aided by improved capacity utilisation and softening commodity costs for two-wheelers and that of IT services sector was due to improved employee utilisation, along with a decline in attrition. Power generation companies also saw margin improvement, as decline in coal e-auction premiums helped.

But cement industry's margins contracted 110-130 bps despite easing cost pressures, primarily due to subdued pricing.

Steel sector has also likely experienced margin contraction, as the impact of on-year coking coal prices dip was offset by rising iron ore prices rose due to global price trends, increased export demand, and strong domestic demand.

For the full fiscal, Ebitda margin is expected to recover 50-150 bps in fiscal 2025, aided by cooling commodity prices and volume-driven revenue growth.