After four sluggish months, why are corporate revenues seeing a pickup — and will this sustain?
Context- After seeing moderation for four consecutive quarters, the pace of revenue growth of Indian corporates is estimated to have picked up in the July-September quarter. India Inc is likely to have clocked revenue growth of 8-10 per cent on a year-on-year basis in the second quarter, a Crisil report said. Consumer discretionary products and services and construction-linked sectors may have registered higher growth.
How is Indian corporate revenue growth projected for Q2?
- Revenue of Indian corporates is estimated to have grown 8-10 per cent on-year in the September quarter, marking the first such improvement in the pace of growth after four quarters, according to a Crisil Market Intelligence and Analytics (MI&A) Research report.
- Crisil’s estimates are based on an analysis of more than 300 companies, excluding financial services and oil and gas sectors. Of the 47 sectors Crisil MI&A Research tracks, nine, accounting for more than 70 per cent of overall revenue, saw a pickup in on-year growth.
- The report said operating profitability likely expanded by a smart 200-300 bps on-year during the second quarter. Subsequently, the overall earnings before interest, tax, depreciation and amortisation (EBITDA) margin for nearly 350 companies is estimated at 20-22 per cent during the first half of this fiscal, up from around 18 per cent a year ago.
Which sectors are expected to show higher revenue growth?
- Growth in revenue in Q2 FY2024 was largely skewed towards consumer discretionary products and services, where automobiles and the retail sector led the pack, and construction-linked sectors, where companies accrued benefits from an early deployment of capital expenditure by the roads and railways ministries
- Truant monsoon proved to be a silver lining as there were fewer interruptions in construction activity, thereby supporting volume growth even during a seasonally lean period.
- The automobile sector registered a growth of 12-14 per cent, driven by three sub-segments — commercial vehicles, passenger vehicles and two-wheelers.
- The growth was steered by a 20-25 per cent pick-up in passenger vehicles due to healthy demand sentiment, supported by new model launches, supply-chain improvement and more variety in the product portfolio.
- Within the consumer discretionary products segment, retail kept its momentum, growing 16-18 per cent. Led by a 19-21 per cent growth in media and entertainment and around 20 per cent in the hospitality segment, comprising airline services and hotels, the consumer discretionary services vertical likely grew 13-15 per cent on year.
- The construction-linked segment was supported by the cement, steel products, roads and highways, and construction sectors. Cement companies likely recorded a 13-15 per cent growth backed by a 12-14 per cent volume growth over the year-ago.
- Steady domestic demand contributed to the 8-10 per cent growth in revenue of steel products. However, muted global demand restricted export growth to 2-4 per cent.
- While merchandise exports continued to be weighed down by weak global demand, essentials such as pharmaceuticals seem on course to register a 10-12 per cent on-year growth owing to strong domestic price growth, continued momentum in exports to regulated markets and abating pricing pressure in the US.
Which sectors may have seen a slowdown in revenue growth?
- Soft global growth impacted the revenue of the aluminium industry, which contracted 12-14 per cent. Global prices fell marginally and were reflected in the premiums of major export destinations.
- Prices of commodity chemicals saw downward pressure owing to China’s slow recovery and widespread destocking, resulting in a likely 10-12 per cent fall in revenue. Lower realisations amid muted demand also impacted the revenue of cotton and synthetic textiles.
- For gems and jewellery, export demand remained weak amid modest purchasing power.
What is the expectation for revenue growth in FY2024?
- Going forward, revenue growth is likely to get a further augmentation because of the festive season-led demand for consumer discretionary products and services, Crisil said.
- Indian corporate revenue is expected to grow 10-12 per cent this fiscal despite a global slowdown and interest rate hikes, essentially led by domestic consumption, it said.
Way Forward – According to Crisil, two factors that can swing corporate performance in the second half are —monsoon leaning towards inadequacy which could impact the crucial rural demand and export demand which continues to remain on the tenterhooks. However, favourable input costs may provide corporate India with the much-needed respite.
Syllabus- GS-3; Economy
Source- Indian Express