CRISIL Ltd. : Revenue growth bottomed out: CRISIL Research

January 2, 2014 Mumbai Revenue growth bottomed out: CRISIL Research

Profitability to remain weak

CRISIL Research, India's largest independent and integrated research house, projects India Inc's revenues (excluding financial services and oil companies) to increase by a tepid 7-9 per cent y-o-y, during October- December 2013 (Q3FY14). However, as against the previous quarters, wherein growth was concentrated among a few sectors, from Q3FY14 onwards, several sectors are expected to register a gradual improvement in growth rates. The rise in revenues, though, would not translate to higher profitability. EBITDA margins during the quarter are estimated to remain stable y-o-y at 17 per cent.

Mukesh Agarwal, President, CRISIL Research, says, "Revenues, after declining for nine successive quarters, rebounded in the July-September 2013 quarter. However, the growth in revenues was largely on account of export-oriented sectors benefiting from a weak rupee. From the third quarter of 2013-14, though, we expect a gradual recovery in more sectors. Apart from IT, pharmaceuticals and textiles, domestic consumption-linked sectors will see moderate improvement, as rural demand picks up owing to a better monsoon. Also, while growth in investment-linked sectors will remain weak, unlike in the last many quarters, it is not expected to deteriorate further. A more sustained recovery is expected only in

2014-15, spurred by investments in projects fast-tracked by the Cabinet Committee on Investments, and lifting of the mining ban by the government."

In Q3FY14, CRISIL Research expects one-third of the 50 sectors (encompassing 605 companies) covered in this analysis, including IT services, pharmaceuticals, tractors, textiles, FMCG, retail and media, to clock double- digit growth. Higher rural income, owing to a good monsoon, will benefit two-wheeler and tractor manufacturers, which, in turn, will support the auto components sector. Volume growth in the FMCG sector is expected to sustain. Also, steel companies will register higher growth, led by import substitution and rise in exports due to rupee depreciation. Infrastructure linked sectors such as construction, roads and cement have bottomed out as well. Moreover, the pace of revenue decline in the commercial vehicles and capital goods sectors is expected to slow down, owing to a low base.
However, improvement in revenue is not expected to lead to higher profitability across all sectors. According to Prasad Koparkar, Senior Director, CRISIL Research, "Margin expansion is not expected until pricing power returns, which we do not expect before financial year 2014-15. In the third quarter of 2013-14, margins of sectors such as IT and pharmaceuticals will increase by 80-100 bps due to a weak rupee. Margins of the telecom sector will improve by 70 bps and that of the two-wheeler sector will rise by about 100 bps, led by higher realisations. Margins of the cement, power, airlines and paper sectors, though, are expected to decline because of high input costs."
Due to muted EBITDA growth and high interest costs, net profit margins, which declined by about 300 bps in Q2FY14, are expected to remain under pressure in Q3FY14, particularly of sectors such as construction, housing, metals, telecom and capital goods.

Contd…

January 2, 2014

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Media Contacts	Analytical Contacts
Manasi Apte Manager Communications and Brand Management CRISIL Limited Phone: [phone] Mobile: [phone] Email: [e-mail] Jyoti Parmar Communications and Brand Management CRISIL Limited Phone: [phone] Email: [e-mail]	Mukesh Agarwal President CRISIL Research Tel: [phone] E-mail: [e-mail] Prasad Koparkar Senior Director Industry and Customised Research CRISIL Research Phone: [phone] Email: [e-mail]

About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

About CRISIL Research

CRISIL Research is India's largest independent and integrated research house. We provide insights, opinions, and analysis on the Indian economy, industries, capital markets and companies. We are India's most credible provider of economy and industry research. Our industry research covers 70 sectors and is known for its rich insights and perspectives. Our analysis is supported by inputs from our network of more than 4,500 primary sources, including industry experts, industry associations, and trade channels. We play a key role in India's fixed income markets. We are India's largest provider of valuations of fixed income securities, serving the mutual fund, insurance, and banking industries. We are the sole provider of debt and hybrid indices to India's mutual fund and life insurance industries. We pioneered independent equity research in India, and are today India's largest independent equity research house. Our defining trait is the ability to convert information and data into expert judgements and forecasts with complete objectivity. We leverage our deep understanding of the macroeconomy and our extensive sector coverage to provide unique insights on micro-macro and cross-sectoral linkages. We deliver our research through an innovative web-based research platform. Our talent pool comprises economists, sector experts, company analysts, and information management specialists.

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Last updated: May, 2013

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The views expressed in this Press Release are CRISIL Research's views and not those of CRISIL's Ratings division. CRISIL Research operates independently of and does not have access to information obtained by CRISIL's Ratings Division, which may in its regular operations obtain information of a confidential nature that is not available to CRISIL Research.

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January 2, 2014

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