• Revenue Growth
  • Prasad Koparkar
  • GST
  • FMCG
  • CRISIL Research
April 09, 2018 location Mumbai

Q4 revenue growth seen at 9%, margin pain to ease

Higher volumes, price hikes expected to cushion operating profits

Growth in corporate revenue – excluding that of banking, financial services & insurance and oil companies – is likely to print at ~9% on-year for the fourth quarter of fiscal 2018, CRISIL Research’s analysis of over 400 companies, which account for 65% of the market capitalisation of the National Stock Exchange shows.


That’s slower than the 12-quarter high of 10.9% seen in the third quarter, which had benefited from low-base effect following demonetisation in the corresponding year-ago period. The slowdown is largely on account of higher base for consumption-linked sectors, which had partially recovered from demonetisation in fourth quarter of last year. Operating profitability, or earnings before interest, tax, depreciation and amortisation (EBITDA) margin, meanwhile, is expected to come in at a 12-quarter low of 18.6%. The pace of margin contraction, though, is seen easing to around 50 bps on-year from 100-250 basis points (bps) in the previous four quarters.


Says Prasad Koparkar, Senior Director, CRISIL Research, “Second half of fiscal 2018 will end at a double digit mark, mainly led by consumption and commodity linked sectors. Volume growth is clearly evident across consumption linked sectors. Sequentially a number of sectors would show growth lower than the third quarter as low base benefits reduce. While margin pressure continues with higher commodity prices, operating leverage benefits would cushion the impact on margin to some extent.”


The pick-up in volumes seen in the third quarter is expected to have sustained, in both consumption and commodity-linked sectors.


Consumption-driven sectors such as automobiles, retail and airline services are expected to log revenue growth in excess of 15%, led by volumes. GST linked teething troubles reduced which also aided volume growth.


Among commodity-linked sectors, natural gas and cement are expected to post robust growth, led by volumes, while the likes of petrochemicals and steel products would benefit from continued higher prices.


Overall, 11 out of 21 key sectors are expected to log near double-digit revenue growth in the fourth quarter.


Telecom, though, continues to face pricing pressure as incumbents slash tariffs to retain subscriber market shares. Export-linked sectors such as IT and pharmaceuticals, too, remain under weather, amidst an appreciating rupee and a tough international environment.


Overall operating profit is expected to have grown 5-6% for the second consecutive quarter. The pressure on margins, though, remained.


Says Hetal Gandhi, Director, CRISIL Research, “Sectors such as automobiles, retail, and auto components are expected to log improvement in EBIDTA margins, while for FMCG, natural gas, construction and aluminium, the margins would be flattish as the benefits of operating leverage are offset amid higher raw material prices. For sectors such as steel products, cement, telecom and pharmaceuticals, at the other end, margins will remain under pressure amid higher commodity prices, an appreciating rupee and structural headwinds.”


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    CRISIL Limited
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