Revenue of Indian corporates is projected to have increased 8-10% on-year in the December quarter but declined 100-150 basis points (bps) sequentially. In the September quarter, on-year revenue growth had improved after easing for four quarters on the trot.

Of the 47 sectors CRISIL Market Intelligence and Analytics (MI&A) Research tracks, all but 13 recorded an on-year pick-up in revenue growth. In all, our analysis covered ~350 companies (excluding financial services and oil and gas sectors).

Revenue growth would have been stronger but for the decline in agri-linked sectors such as fertilisers, consumer staples such as edible oils, industrial commodities such as chlor-alkalis and commodity chemicals, and aluminium. Also, revenue growth seemed to be propelled by volume, particularly in the domestic market, while realisation either declined or grew at a sedate pace.

Says Aniket Dani, Director- Research, CRISIL Market Intelligence and Analytics, “Construction-linked sectors, which together account for 20% of overall revenue, grew 5-7% as construction activity picked up post the lean monsoon season, thereby augmenting growth in the cement and steel industries as well. Corporate revenues continued to be driven by consumer discretionary products and services, and consumer staples, which contribute over a third of total revenue. Automobiles, airlines, retail and hospitality supported growth. Led by the healthy performance of pharmaceuticals and IT services, export-linked sectors rose 16% and outpaced overall revenue growth.”

The automobiles sector likely grew 13-15% during the quarter, steered by 16-18% growth in passenger vehicles on healthy demand sentiment, supported by new model launches, greater variety in the product portfolio, and supply chain improvements. Two-wheelers also picked up despite an erratic monsoon, and buoyed by a strong festive season demand, volume likely grew 20-25%.

Within consumer discretionary products, retail maintained its momentum, growing 18-20%. Airlines and hotels, which make up the hospitality segment, grew a robust 25% and 44%, respectively, led by strong domestic tourism, particularly during the festive and wedding seasons. This, coupled with a steady 8-10% growth in the media and entertainment industry, pushed up revenue of the consumer discretionary services vertical 13-15%.

Construction companies likely saw 7-9% growth, supported by a healthy rise in order inflows due to the government’s thrust on infrastructure and urban development. Construction activity picked up pace post the monsoon-led interruption seen during the September quarter.

Among construction-linked segments, cement companies likely recorded 8-10% growth on a high base of the year-ago quarter, backed by 12-14% volume growth clocked by large and mid-sized players, while realisation inched up a modest 1-3%. Realisation of small and mid-sized players remained under pressure though.

Steel, another construction-linked segment, also saw steady domestic demand, which contributed to 16-18% growth in the revenue of steel products during the quarter. Volume expanded by a healthy 8-10% following higher offtake of long steel products for infrastructure, construction projects and the auto industry, though this was lower than the 16% growth seen in the second quarter. However, competitive global markets resulted in exports contracting by over a third and capped flat and long steel prices as well.

While merchandise exports continued to be weighed down by weak global demand, essentials such as pharmaceuticals likely logged 17-19% on-year growth owing to strong 8-10% growth in the domestic markets, continued momentum in exports to regulated markets and easing pricing pressure in the United States. Semi-regulated markets, too, witnessed a recovery. IT services saw 15% growth, but could have been stronger had it not been for a seasonally weak quarter.

But moderation in global growth continued to weigh down the revenue of the aluminium industry, which contracted by ~2%. Global prices fell marginally and reflected in the premiums of major export destinations.

Global headwinds impacted the chemicals segment as well. Prices of commodity chemicals saw downward pressure owing to China’s slow recovery and widespread destocking, resulting in a likely 17-19% fall in revenue.

Cotton textiles benefitted from strong volume growth amid competitive pricing, but soft realisation restricted further improvement in revenue.

In case of gems and jewellery, exports demand remained weak amid modest purchasing power in the United States, the key market for cut and polished diamonds.

However, operating profitability likely expanded by a smart 100-150 bps on-year in the quarter. Subsequently, overall earnings before interest, tax, depreciation and amortisation (Ebitda) margin for ~350 companies are estimated at 19-20% during the first nine months this fiscal, up from 17-19% a year ago.

Says Arindam Pal, Associate Director- Research, CRISIL Market Intelligence and Analytics, “Corporate India has continued to benefit from softening input costs this fiscal, which are likely to give a leg-up to volume growth. Prices of key commodities such as coal and crude oil have eased, as have power and freight costs. This, coupled with continued volume growth in the domestic market, will support operating profitability in the near term.”

Barring the steel products sector, where margins remained broadly at year-ago levels, the top nine industries recorded an expansion in operating profitability on-year. Cement, power and aluminium industries gained the most. Margins of the power sector were driven by a combination of higher demand, and a simultaneous decline in Indonesian coal prices and stable domestic coal prices.

The telecom industry managed to clock 150-200 bps improvement in profitability due to stable costs and higher realisation from tariff revisions and migration of customers from 2G and 3G to 4G and 5G. Easing commodity costs helped the automobiles industry expand margin by 100-150 bps, while moderation in costs of some active pharmaceutical ingredients and simultaneous bolstering of revenue supported margin expansion in the pharma sector.

In the fourth quarter, revenue is likely to continue its growth trajectory to close the fiscal with 9-12% growth. However, slower-than-expected recovery in export demand and weak rural demand following an inadequate monsoon remain monitorable. Against this backdrop, favourable input costs may provide corporate India a much-needed respite.