The Business Bytes
New Delhi, October 24, 2024 (TBB Bureau): India Inc is projected to experience its slowest revenue growth in 16 quarters, with an estimated increase of only 5-7% on a year-on-year basis for the three months ending September. This deceleration is largely attributed to stagnant performance in the construction sector, which constitutes about one-fifth of India Inc’s total revenue. Additionally, declines in the industrial commodities sector and modest growth in investment-linked areas have contributed to this slowdown.
This analysis draws on data from 435 companies that represent nearly half of the listed market capitalization, which had previously reported an 8.3% revenue growth in the April-June quarter.
Pushan Sharma, Director of Research at CRISIL Market Intelligence and Analytics, said, “Revenue from industrial commodities, investment, and construction-linked sectors, which together account for approximately 38% of our sample set, only grew by 1%, significantly dragging down overall performance. The industrial commodities sector, particularly coal, faced a revenue decline of 6-7% due to lower coal offtake, diminished coal-based power generation, and reduced e-auction premiums. In the investment sector, the power segment — which contributes 70% of revenue — grew merely by 1%, as an above-normal monsoon season led to reduced power demand. The construction sector was not spared either, with steel revenues falling by 2-3% as a result of price drops driven by cheap Chinese imports.”
Despite the revenue challenges, India Inc’s profitability is estimated to have improved by 70-90 basis points (bps) year-on-year for the quarter, with overall earnings before interest, tax, depreciation, and amortization (Ebitda) for the sampled companies growing by 10% on a yearly basis.
Elizabeth Master, Associate Director of Research at CRISIL, said, “Among the top 10 sectors that comprise 75% of total revenue, eight experienced Ebitda margin expansion. This was particularly pronounced in export-linked sectors like IT services and pharmaceuticals, as well as investment-linked sectors such as power, and consumer discretionary sectors including automotive and telecom services. Conversely, the steel and cement sectors faced margin contractions due to rising iron ore prices and subdued pricing conditions, respectively.”
In the IT sector, Ebitda margins improved by 110-130 bps, spurred by increased employee utilization and lower attrition rates. The pharmaceutical industry saw a significant margin expansion of 320-340 bps for formulation players, driven by topline growth and reduced raw material costs. In the bulk drugs segment, the recovery in exports and improved realizations contributed to a 230-250 bps margin increase.
Investment-linked sectors also saw benefits, with a decline in coal e-auction premiums bolstering margins by 130-150 bps for power generation companies. Meanwhile, consumer discretionary sectors experienced a boost, particularly telecom services, which saw margin improvements of 120-140 bps due to reduced license fees, lower spectrum charges, and decreased network operating expenses, alongside steady revenue growth.
However, the steel sector encountered challenges despite a drop in coking coal prices, as rising iron ore prices driven by increased export demand and robust domestic consumption resulted in margin contractions of 40-60 bps year-on-year. The cement industry similarly faced a margin contraction of 110-130 bps due to subdued pricing, despite a slight easing of cost pressures.
