India Inc is expected to report a marginal 2% revenue growth in Q3 FY16, which would be the sixth consecutive quarter of single-digit growth, according to a Crisil Research report. However, EBITDA margins are forecast to improve slightly to 5.8% due to higher gross margins from falling commodity prices. Revenue growth excluding commodity-linked sectors like steel and petrochemicals would be around 5.4%. While input costs are lower, demand remains weak across several sectors like FMCG, textiles, cement, and IT services, impacting pricing. EBITDA margins are seen improving for sectors like automobiles, FMCG, cement, power generation, tyres and paper due to lower raw material

1. India Inc likely to see muted
revenue growth in Q3: Study
EBITDA Margins May Improve Marginally

2. Contd…
Despite a low base effect, India Inc is expected to report a marginal 2% growth in
revenues on a yearly basis during the just concluded October-December 2015
(Q3,FY16), thanks mainly to tumbling commodity prices, weak investment demand
and flagging rural consumption. This would be the sixth consecutive quarter of
single-digit increase in topline for top Indian companies taken together, a report by
Crisil Research noted. However, the good news is that EBITDA (earnings before
interest, taxes, depreciation and amortisation) margins are expected to improve
1.8% to 5.8% during Q3, FY16 due to the increase in gross margins. Revenue growth
would be higher if sectors relating to the commodity cycle such as steel and
petrochemi cals are excluded but would still be only around 5.4%. The analysis
excludes banking, financial services & insurance and oil & gas companies.
“With growth rates still trending below estimates, we believe the consensus
earnings estimates for both this fiscal and next will have to be pared further,“ Crisil
Reserach said in a note. The analysis is based on 600 companies that account for
70% of the market capitalisation of NSE.

3. Contd…
“India Inc is grappling with poor demand sentiment.With lower input costs and
intense competition, pricing has also been impacted,“ said Prasad Koparkar, senior
director, Crisil Research. “This is evident across a range of sectors airlines, fast
moving consumer goods (FMCG), tex tiles, cement (except in the so uth), and
information tech nology (IT) services,“ he sta ted. “In addition, the heavy rains that
disrupted normal life in Chennai will impact the December quarter numbers of
consumer discretionary sectors as well as IT services, auto components and
engineering (companies),“ Koparkar said.
“EBITDA margins will improve with automobiles, FMCG, cement, power generation,
tyres and paper outperforming because of lower raw material costs,“ said Ajay
Srinivasan, director, Crisil Research. While project execution in roads has gained
traction, this is yet to reflect in the performance of investment-linked sectors
because of overcapacity and weak demand in other enduse sectors such as real
estate. The note also pointed out that telecom, cement, petrochemicals and FMCG
are likely to outperform while steel, housing, IT services and pharmaceuticals
sectors are likely to see a decline in EBITDA margins.

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