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October 10, 2019

India Inc revenue growth at a 14-quarter low in Q2

EBITDA growth to be lowest in nine quarters

Revenue growth to decline 3% in Q2 FY20, the most in 14 quarters


India Inc’s revenue growth – excluding banking, financial services, and insurance (BFSI) and oil companies – is estimated to have declined ~3% on-year in the second quarter (Q2) of fiscal 2020, the lowest in the past 14 quarters, on account of muted private consumption demand.


In the past four quarters – from Q2 fiscal 2019 to Q1 fiscal 2020 – aggregate revenue of companies grew at an average of 11-12%. CRISIL Research’s assessment is based on the analysis of 300 companies comprising ~60% of the National Stock Exchange’s market cap (excluding financial services and oil companies).


The decline in revenue has largely been on account of consumer-linked sectors, which are estimated to have witnessed 5% contraction in revenue during Q2 fiscal 2020. Companies in the automobiles sector are estimated to have posted a sharp decline of 24-26% in revenue. This can be attributed to the decline in sales on account of muted consumer sentiment amid high cost of ownership for passenger vehicles (PVs), deferment of purchases because of expected Goods and Services Tax (GST) cuts, lower freight demand aggravated by the new axle norms, and weak financials of commercial vehicles (CVs).


In a rub-off of the impact, auto components revenue is estimated to have reduced by 14-16% due to production cuts. On the other hand, despite an estimated growth of 5-6% in cement revenue, construction-linked sectors are expected to have seen ~5% on-year decline in revenue in Q2 fiscal 2020. This is on account of ~15% on-year fall in steel products mainly led by declining realisation.


Interestingly, Q1 fiscal 2020 had witnessed trend reversal in earnings before interest, tax, depreciation and amortisation (EBITDA), which grew by 7.1% on 4.1% revenue growth. This was on account of a sharp improvement in EBITDA of consumer services such as airlines, telecom and retailing.


However, in Q2 fiscal 2020, pressure from the automobiles sector, due to lower utilisation and export-linked sectors on account of absence of rupee tailwind coupled with higher operational cost, is expected to have dragged EBITDA growth to 0-1%. It should be noted that the last time a sharp EBITDA decline was observed was post demonetisation during January-June 2017. Thus, in Q2 fiscal 2020, companies are estimated to have posted the lowest revenue and EBITDA growth in nine quarters.