Margins to remain steady despite muted growth: Crisil

Mumbai: The ongoing slowdown in growth will result in a muted revenue growth of around 11-13 percent for companies during third quarter, but India Inc will be able to protect margins, ratings agency Crisil said on Wednesday.

About 17 of the 28 key sectors, excluding banks and oil and gas, are expected to either post a negative or low single digit growth during the October-December quarter, it said, adding that overall revenue growth will be 11-13 percent.

Automobiles, FMCG (fast moving consumer goods), capital goods and metals will be the sectors facing headwinds on the revenue expansion front in Q3, it said.

Weak consumer demand will affect two-wheelers, retail, textiles and housing, while a dip in travel will hurt hotels and airlines, and investment-linked sectors like capital goods, steel and cement will witness volume pressure due execution delays in power, construction and infrastructure sectors, Crisil said.

Listed companies are expected to start reporting their quarterly numbers for the October-December period starting next week. The economy grew at slower-than-expected 5.3 percent during the second quarter and many watchers, including the Reserve Bank, have downwardly revised their full fiscal growth forecasts.

Companies will be able to expand margins by up to 0.30 percent during the quarter due to many factors, it said.

"EBITDA margins will be supported by increasing realisations and softening prices of commodities such as coal, rubber and cotton," Crisil Research president Mukesh Agarwal said in a report, adding that cost controls by corporates will also help.

Crisil senior director Prasad Koparkar said lower input costs will help power generation, textiles and tyre sectors post higher margins during the quarter while export-oriented companies will witness their margins come under pressure as the help from rupee depreciation wanes off.

It also warned that the margin expansion on the back of jump in realisations, rupee depreciation and cost control is "not sustainable" and volume growth is a pre erquisite for a growth in profitability in the future.

A few sectors like hotels and shipping will witness a decline in pre-tax margins due to overcapacity while for paper and petrochemicals, high input costs will be the dragging factors, it said.

Koparkar said sectors like sugar, tyre cement and airlines will witness a 2.50 percent jump in margins, and hence lead the surge in corporate profitability during the quarter.

PTI