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India Inc's Q2 margins to slip by 1 per cent: Crisil

Crisil Research expects year-on-year revenue growth of around 15 per cent, compared to 19 per cent in the preceding quarter and 22 per cent in Q2 FY11.

India Inc is expected to report a significant moderation in revenue growth and lower margins in the quarter ending September 2011 (Q2 FY' 12), primarily due to decline in consumer confidence, on account of stubbornly high inflation and rising interest rates, and uncertainty over future income growth, Crisil Research said.

The integrated research house expects year-on-year (YoY or compared to the same quarter the previous year) revenue growth of around 15 per cent, compared to 19 per cent in the preceding quarter and 22 per cent in Q2 FY11. This is based on an analysis of the aggregate financial performance of select companies across 21 industries, excluding banks and oil companies.

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"Sales volumes in consumption-linked and interest rate sensitive sectors such as automobiles, real estate, textiles and retail have been significantly impacted. In infrastructure-linked sectors such as cement, capital goods and construction as well, order book/ volume growth has declined," said Prasad Koparkar, head-industry and customised research of Crisil Research.

"We anticipate this slowdown to manifest in significantly muted topline growth during Q2 FY12," Koparkar added.

Although companies have hiked prices, slower volume growth, along with high input costs and rising wages, would put pressure on margins.

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"We expect a 100 basis points (bps, one of which equals onehundredth of a percentage) reduction in earnings before interest, taxes depreciation and amortisation (EBITDA) margins in Q2 FY12 from 19.5 per cent during April-June 2011. Further, with increase in interest rates, net margins are expected to fall even more sharply," Crisil Research said.

The margin reduction would be led by airlines (a fall of 11.3 per cent YoY), real estate (7.6 per cent), shipping (7.5 per cent), textiles (5.6 per cent) and telecom services (two per cent).

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While airlines are expected to report healthy revenue growth, propelled by increased passenger traffic, they have not been able to increase realisations to compensate for higher aviation turbine fuel costs. Consequently, EBITDA margins are expected to decline sharply to 10 per cent during Q2 FY12 from around 22 per cent YoY. Hike in vehicle and fuel prices along with higher interest rates have increased the cost of ownership.

In Crisil Research's estimate, the typical ownership cost for an A2 segment car, which accounts for around 75 per cent of total domestic car sales, has increased by 12-14 per cent in the first half of 2011-12, affecting their demand.

Only pharmaceuticals, steel products, cement and paper companies are projected to gain in terms of margins, but that too with a maximum of up to one per cent during the quarter.

All the sectors in the universe, except real estate, are expected to post gains in revenue in the range of 4.5 per cent to 18.1 per cent. The real estate sector is expected to see a revenue slide of 5.1 per cent for the quarter.

Courtesy: Mail Today