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Revenue growth to hit 5-year high in Q3: CRISIL Research

Niti Kiran     January 10, 2018

Corporate revenues (excluding that of banking, financial services and insurance, and oil companies) are expected to rise around 9 per cent year-on-year in the third quarter of FY2017/18, says a CRISIL Research report. The revenues growth is expected to hit a five-year high in the quarter concluded in December 2017. Stronger performance of consumer-oriented sectors is expected to be the primary driver of growth in the second half of this fiscal with GST teething troubles abating and trade channels reverting to normalcy. Companies across key sectors account for nearly 70 per cent of the market capitalisation of NSE-listed firms, excluding banking, financial services, insurance and oil.

Consumption-linked sectors, except telecom services, are expected to grow at a robust 13-14 per cent, driven by a demand boost during the festive season and owing to the low base effect from demonetisation impact in the same quarter last fiscal along with the fade-out of GST-related disruptions. Telecom, however, will continue to face pricing pressure as incumbents slash tariffs to maintain competitive pricing. Export-linked sectors such as IT and pharmaceuticals will also continue to disappoint amid a tough international environment. In pharmaceuticals, the U.S. pricing and regulatory pressures will remain although pricing concerns will come down over the next few quarters, aided by new product launches. Commodity-linked sectors such as steel products and petrochemicals are expected to grow amid firm prices.

Telecom services, pharma, sugar and housing sectors will see the sharpest fall in margins. Had it not been for these sectors, overall EBITDA (earnings before interest, tax, depreciation and amortisation) margins of key sectors would have declined only by 40 bps in the third quarter of fiscal 2018.

The aggregate top-line performance was relatively better at 6.8 per cent in the second quarter of fiscal 2018, after a weak first quarter. Key commodity-linked sectors such as cement, steel products, aluminium and natural gas registered a healthy 21 per cent YoY growth in revenue and saved the day. According to the report, steel and non-ferrous metals led the commodity-linked sectors' performance, benefiting from the rise in prices. Further, the pain in consumption sectors relatively softened, with all consumption-linked sectors, excluding telecom, registering a YoY growth of 14 per cent.

A rise in the input cost and pricing pressure dented the overall profitability of Indian industries. The EBITDA margin contracted a little less than 100 bps to 19 per cent in the second quarter of fiscal 2018.


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