A spurt in volumes on a low base, coupled with improvement in realisations riding on higher commodity prices, lifted corporate revenue 15-17% on-year to Rs 6.9 lakh crore in the fourth quarter of fiscal 2021, a CRISIL Research estimate indicates. The double-digit growth comes after eight quarters of either decline or single digit growth.

Indeed, with visible recovery in the second half of fiscal 2021, overall revenue for the sample set may be a mere 0.5% lower compared with fiscal 2020. This is also supported by larger players displaying more resilience than mid corporate and smaller players in dealing with the pandemic impact.

The estimates are based on an analysis of ~300 companies, which account for 55-60% of the market capitalisation (excluding financial services and oil companies) of the National Stock Exchange.

Says Hetal Gandhi, Director, CRISIL Research, “The robust revenue growth rides on a low base of the corresponding quarter a year ago, besides higher government capital expenditure, and higher realisations amid a commodity upcycle, among others. A closer look at the revenue breakup indicates ~50% of the recovery is contributed by three key verticals – automobiles, IT services and construction.”

Construction-linked sectors such as steel and cement are estimated to have seen revenue rise 45-50% and 17-18% on-year, respectively, buoyed by higher realisations and volumes. Domestic prices of flat steel and cement are estimated to have increased ~32% and ~2% on-year, respectively, supporting revenue growth in the quarter.

But the picture is not rosy across verticals. A cloud of uncertainty continues to loom over consumer discretionary services. Revenue for players in sectors such as airline services is estimated to drop ~30% on-year amid social distancing and cut in discretionary expenses, especially travel budgets. Similarly, revenue for players in media and entertainment is also expected to drop ~10% on-year due to lower advertisement spends and subscriptions. That said, a lower share of such sectors in the top 300 sectoral mix has muted the impact.

On the other hand, earnings before interest, tax, depreciation and amortisation (Ebitda) is estimated to be 28-30% higher on-year for the fourth quarter, significantly better than revenue growth.

Adds Mayur Patil, Associate Director, CRISIL Research, “Demand recovery, higher realisations, and unprecedented fixed-cost reduction measures have enabled a healthy rise in Ebitda margins for six quarters now. However, rising commodity prices will lead to a decline in margins on a sequential basis. Key raw materials – steel, aluminium, natural rubber and crude oil – saw double-digit increase from March 2020 levels. Nevertheless, the low base of last year led Ebitda margins to be over 200 bps higher on-year.”

Sequentially, an increase in commodity prices should result in contraction of margins across key sectors. Margins in steel, cement and pharmaceuticals sectors, which together account for ~30% of aggregate Ebitda profits, are expected to contract by ~380 bps, ~230 bps and ~160 bps, respectively, on a sequential basis.

Despite this, fiscal 2021 would see Ebitda profiles rise 12-13% on-year over flat revenues. Ebitda margins would reach a decade high of 22.2%, led by low commodity prices in the first half and fixed cost-reduction initiatives across companies for the year.

As Covid-19 cases rise with the second wave, states are likely to mount partial lockdowns, keeping demand recovery uncertain in the near term. Newer strains of the virus, scale of vaccinations and subsequent revival in demand would be among the key monitorables for fiscal 2022.