India Inc’s revenue is expected to rise ~14% on-year in the third quarter of this fiscal ended December 2022 to Rs 10.9 lakh crore, following a steady rise in volume and some price hikes, and driven primarily by the consumer discretionary segments. On a sequential basis, revenue is seen up 0.9%, and profitability 140 basis points (bps).

Operating margin likely contracted 270 bps on-year — slower than in the past two quarters — as easing commodity prices provided succour amid moderating revenue growth. However, this would mark the fifth quarter of on-year contraction.

On a sequential basis, however, operating margin would rise for the first time in six quarters to 18-19% in the third quarter from 17.2% in the second. The number has been falling since touching 23.7% in the first quarter of last fiscal.

A CRISIL MI&A Research’s analysis of over 300 companies (excluding those in the financial services, and oil and gas sectors) indicates as much.

For the nine months to December 2022, revenue is seen up ~24% on-year, while margin likely crunched ~400 bps.

Of the 47 sectors tracked, ~20 are expected to outpace overall revenue growth in the third quarter, while three-fourths should see operating margin contracting on-year.

Says Hetal Gandhi, Director-Research, CRISIL Market Intelligence and Analytics, “Revenue growth in the third-quarter growth would be driven by consumer discretionaries such as airlines and automobiles, while construction-linked ones such as steel, aluminium and some industrial commodities such as petrochemicals would underperform. Slowdown winds in the two largest markets abroad for Indian businesses — US and Europe — will curtail ITeS (BPO services) and lead to a contraction in the exports of gems & jewellery and textiles as consumers there cut spending.”

While revenue for airline services should ascend 41% on-year following a significant rise in passenger traffic and fares, for automobiles, it should drive past 22% on higher domestic volume and realisations for vehicle makers.

IT services is seen largely apace with the overall revenue trend, growing 13% on-year.

Revenue of construction-linked companies is seen up a fifth on a healthy rise in capex allocations by central and state governments for infrastructure build-outs, healthy growth in orderbook, and improved execution.

Says Sehul Bhatt, Associate Director-Research, CRISIL Market Intelligence and Analytics, “Operating margins in the automobile, metals and construction sub-sectors, which had contracted in the second quarter, reversed trend sequentially in the third quarter. Of the 20 sectors expected to outpace on revenue growth, 10 should see a margin contraction and five marginal improvement. Companies are still not able to fully pass on higher commodity prices.”

Operating margin in steel products likely contracted more than 800 bps on-year due to a 15-20% on-year correction in flat steel realisations, and costlier iron ore and coking coal. Construction-linked sectors and industrial commodities would see a margin contraction of 500 bps on-year, largely due to elevated input cost and inability to pass it on to customers. For cement makers, margin is seen contracting 230 bps on-year, again due to higher input cost.

Says Jignesh Surti, Manager-Research, CRISIL Market Intelligence and Analytics, “Prices of key energy-linked commodities such as crude oil, and non-coking coal are expected to be moderately higher on-year but fall significantly sequentially from multi-quarter highs of the past 3-4 quarters. A continuation of this trend is crucial for the sustenance of, and improvement in, profit margins because growth in realisations could be limited in key sectors.”

Margins of all major verticals are expected to contract on-year barring consumer discretionary, which should see a slight rise on-year, and consumer staple services. The margin expansion in consumer staple services will be supported by higher average room rates in the hospitals sector.

Absolute earnings before interest, tax, depreciation and amortisation, or Ebitda, is seen lower marginally on-year, but up more than 9% sequentially.