India Inc’s revenue growth rate is likely to have halved to 10-12% on-year for the fourth quarter (Q4) ended March 2023 from 22.8% in the same quarter of fiscal 2022 for two reasons: continuing headwinds to exports impacting volume growth, and high-base effect.

However, sequentially — or compared with the third quarter ended December 2022 — the rate of revenue growth is likely to have risen 4-6%, as domestic demand for consumer staples and discretionary products remained resilient amid global volatility and mostly sustained its festival season cheer.

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

For the full fiscal, revenue is estimated to have grown 19-21%, slower than the over 27% growth registered in the preceding fiscal. Operating margin is likely to have moderated around 300 basis points (bps).

Disaggregation of the 10-12% growth for the fourth quarter shows the revenue deceleration was not broad-based, but continued to be driven by commodities and sectors relying heavily on exports.

Of the 47 sectors analysed, revenues of the commodities and export-oriented sectors, such as textiles, gems & jewellery, and information technology-enabled services, declined on-year.

Says Aniket Dani, Director-Research, CRISIL Market Intelligence and Analytics, “Revenue growth during the March 2023 quarter is likely to have been led by consumer discretionary products such as airlines, hotels, media & entertainment, and retail, while demand for consumer staples such as pharmaceuticals and fast-moving consumer goods (FMCG) continued its growth momentum. In contrast, export-linked sectors such as cotton yarn and readymade garment (RMG), gems & jewellery, and aluminium and steel products bore the brunt of a slowdown in key markets.’’

Steel products, which account for around 11% of the revenue of the set, are estimated to have witnessed a 7-9% drop in revenue on-year during the quarter, due to the imposition of export duty in May 2022 and weakness in global demand amid elevated input costs. Muted global demand is expected to have driven a 17-19% fall in revenue of the aluminium industry.

For cotton yarn and RMG, prevailing sluggishness in demand offset benefits from easing of cotton prices, while the gems & jewellery industry continued to struggle due to a fall in discretionary spending in the US — the largest consumer of cut and polished diamonds.

Hotels and airlines saw traction as continued growth in leisure tourism and resumption of business travel led to 98% and 67% growth, respectively, in revenues. Telcos enjoyed 13% growth in revenues as the full impact of tariff hikes came into play. Staples such as pharmaceuticals and FMCG outperformed the industry’s growth. Construction-linked sectors such as cement and ceramics grew on the back of a strong construction season, which supported volume growth, coupled with a healthy rise in capex allocations by the central and state governments, translating into a strong order book for players.

Despite healthy revenue growth, operating margin contracted 150-200 bps during the March 2023 quarter. While raw material prices are seen to be cooling off from their multi-quarter highs, they remain high. The pass-on through realisations remains lower than required, thereby hurting margins.

Sequentially, operating profit margin is estimated to have improved a tad for the second consecutive quarter — from 19% in the December 2022 quarter to 19-20% during the March 2023 quarter. However, it has remained subdued since clocking a high of 25% in the first quarter of fiscal 2022.

Aluminium producers likely saw a 1,700-1,800 bps fall in margins due to lower realisations, but the fall was cushioned by lower production costs and easing coal supply. Blended realisations, and lower power and fuel costs ensured moderate margins of cement manufacturers on a sequential basis, while it expanded 280 bps on an on-year basis.

Steel products companies are estimated to have seen a 750-800 bps contraction in margins. Automobile manufacturers were better off and registered a 45-55 bps improvement in profitability due to lower commodity prices and increased capacity utilisations alongside price hikes.

Says Sehul Bhatt, Associate Director-Research, CRISIL Market Intelligence and Analytics, “Prices of key energy-linked commodities such as crude oil and non-coking coal seem to have come off their earlier highs and will partially offset the impact of lower global demand. Going ahead, a further moderation in input costs will be crucial as players’ ability to improve realisations remains constrained.’’

Corporates are likely to see their profitability improve this fiscal as commodity prices scale down and volumes drive revenue growth.