CRISIL Research estimates India Inc. will report a sequential decline of 8-10% in revenue at Rs 7.3 lakh crore for the first quarter of this fiscal, led by consumer discretionary products such as automobiles, which saw volumes impacted by the lockdowns across states to contain the second wave of Covid-19 infections.

On-year basis, though, revenue will rise 45-50% on a low base. Improvement will be seen across sectors, riding on higher volume on a low base and higher realisations due to increase in commodity prices. Factoring out the commodity sectors, on-year revenue growth will be lower at 37-40%.

These 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.

The sequential drop would be broad-based, with 25 out of the 40 sectors represented by these 300 companies logging lower revenues.

Says Hetal Gandhi, Director, CRISIL Research, “The robust on-year revenue growth is reflective of higher commodity prices and a low base of last year. On a sequential basis, however, sectors such as automobiles, FMCG and construction have seen moderation, while the likes of steel and aluminium continued to grow strongly because of high commodity prices. Even export-linked sectors such as IT services and pharmaceuticals have shown strong resilience in terms of weathering the blow of the second wave sequentially.”

Similar to revenue, operating profit, or earnings before interest, tax, depreciation and amortisation (Ebitda), is expected to log a 6-8% drop on a sequential basis but be ~65% higher on-year, given a low base.

Consequently, operating profitability, as represented by Ebitda margin, is expected to improve 170-370 bps on-year, but by a mere 0-50 bps on-quarter. Excluding aluminium and steel products, the on-year margin expansion will be lower at 20-60 bps, while sequential margins will be flat. As many as 27 of the 40 sectors are expected to log a sequential drop in Ebitda margin.

Says Mayur Patil, CRISIL Research, “Commodity prices have been on an upswing for a while. The price of steel was up ~17% sequentially and ~50% on-year in the first quarter. Even rubber ruled firm and crude linked commodities logged sharp increases in line with the 118% on-year and 13% on-quarter increase in crude prices. Most commodities are expected to see a moderation in the second half, and given limited ability to pass on price hikes, should log a moderation in Ebitda margin.”

For sectors such as steel, aluminium and automobiles, operating margins are set to increase by over 1,000 basis points (bps) on year in the first quarter, led by price hikes. Sequentially, though, margin will increase only for aluminium.

In case of automobiles, lower discounts, prices hikes linked to BS VI rollout and the commodity cycle, and a high fixed cost base of last year will aid on-year improvement in Ebitda margin. However, barring auto components, most OEM-linked segments have seen a drop in margins sequentially, indicating limited ability to pass on increases in commodity prices.

At the other end, cement has been impacted adversely by higher freight and fuel costs. The scenario is similar for the construction sector, where margins are set to dip over 250 bps sequentially. FMCG and power have also borne the brunt of higher commodity prices with margins remaining flattish on year for FMCG but falling sequentially.