Corporate profitability, as defined by the earnings before interest, taxes, depreciation and amortisation (Ebitda) margin, likely dropped 100-120 basis points (bps) on-year and 70-100 bps sequentially in the third quarter ended December 31, 2021, CRISIL’s analysis of 300 companies (excluding those in the financial services, and oil and gas sectors) indicates.

This marks the first on-year decline in 12 quarters. As many as 27 of 40 sectors tracked by CRISIL Research are likely to see their Ebitda margins shrinking.

In terms of sectors, margins in consumer discretionary likely fell 130-150 bps on-year, and in export-linked by 200-250 bps. Information technology services likely saw margins contract 230-250 bps due to increased sub-contracting, while steel products and pharmaceuticals may log a contraction of 110-130 bps each due to rising input cost.

Says Hetal Gandhi, Director, CRISIL Research, “Companies were unable to fully pass on soaring input cost, especially key metals and energy prices. Flat steel prices were 48% higher on-year in the third quarter, while aluminium was up 41%. The price of Brent crude surged nearly 79%, while those of spot gas and coking coal rocketed almost 5.4x and 2.4x, respectively, on-year.”

For the first nine months this fiscal, Ebitda margin is seen up 80-100 bps on-year to 22-24%, aided by the low base of last year. Ebitda profit growth should moderate to 10-12% on-year, compared with a scorching ~47% clocked in the first half of this fiscal — a number that was also bolstered by low-base effect.

Corporate revenue is seen growing a healthy 16-17% to Rs 9.1 lakh crore, driven by surging commodity prices.

Though revenue growth is in line with expectations, the underlying reasons have changed over the past three quarters. While volume growth continued to underperform, price hikes provided some offset.

In automobiles, sales volume of commercial vehicles likely grew 8% on-year, while for cars and two-wheelers it may have dropped 9% and 20%, respectively. However, realisations could be higher — at 12% in passenger cars and utility vehicles, 7% for two-wheelers and 9% for commercial vehicles, on-year — due to price hikes and favourable product mix. That would take the overall auto segment revenue growth to ~4% on-year.

Lower-than-expected auto production amid semi-conductor shortage would also reflect in steel sales volume, which likely slipped ~7% on-year.

In the consumer business segment, leading FMCG players effected price hikes of 6-8% in the first half of this fiscal, and prices likely remained high even in the reporting quarter.

Revenue from export-linked sectors such as IT services likely spurted 18-20% on-year, aided by rising share of digital transformation as well as possible revival of deferred projects. Revenue for pharma companies is seen growing at 6%, while for readymade garments and cotton yarn makers, it’s seen up 30-35% on-year amid higher exports.

Says Drishti Chugh, Senior Research Analyst, CRISIL Research, “In absolute terms, revenues of most sectors have now risen above their pre-pandemic levels, barring airlines and hospitality. But sectors linked to consumer discretionary products have been a drag on overall corporate revenue, which likely grew 7-9% on-year due to lower volume growth. Among other segments, export-linked ones have continued to drive traction with a growth of 15-17% on-year, though this has not quite helped maintain their margins.”