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January 07, 2019

Revenue growth persists but with pallid margins

Quarterly update of industry performance

Growth momentum to moderate slightly


CRISIL Research expects 12-13% on-year revenue growth for corporates, excluding banking, financial services, insurance, and oil companies, in the third quarter of fiscal 2019. Though this will be the fifth consecutive quarter of double-digit growth, the momentum is expected to be slower than in the first half of the fiscal, when the average growth was ~17% on year. However, the growth in the third quarter comes on a high base, as the year-ago period had seen a sharp 13% revenue rise. In the first half of last fiscal, the growth was ~7%.


We expect incremental growth in the third quarter of fiscal 2019 to be driven by continued government spending, higher realisations, especially for commodities, and sustained positive demand sentiment in key consumption-linked sectors.


A pick up in execution in various government schemes such as Prime Minister’s Awas Yojana (PMAY), National Highways Authority of India (NHAI) projects and transmission and distribution (T&D) schemes are expected to aid growth in linked sectors such as cement, steel and infrastructure-related sectors of construction and capital goods. Commodity-linked sectors, such as steel products, natural gas and petrochemicals, are also expected to grow sharply due to better realisations.


Hence, commodities such as natural gas, steel products and cement are expected to grow ~37%, 27% and 10% on year due to volume and realisations growth, while infrastructure-related sectors such as construction is also expected to grow ~12% on year. Consumption-linked sectors such as airline services and retail are seen growing at ~17% on year.


Additionally, rupee is expected to be weaker ~11% y-o-y in Q3 FY19, which will boost export-oriented sectors such as information technology (IT) services and pharmaceuticals, which are projected to grow ~21% and ~10% on year.


On the other hand, the revenue growth is constrained this quarter partly due to sector-specific issues which are likely to dampen revenue outlook for key sectors. While for automobiles, a rise in ownership costs and weaker finance availability are expected to slow down revenue growth to ~4% on year, growth in sugar, aluminium and telecom services is expected to weaken due to lower realisations. Similarly, fast moving consumer goods (FMCG) will witness a moderation in rural demand causing growth to taper to ~8% on year this quarter.