India Inc is estimated to have clocked a slower revenue growth of 5-7% on-year for the three months ended September, marking the slowest pace in the past 16 quarters, because of stagnant performance in the construction vertical, which accounts for a fifth of India Inc's revenue, besides a decline in the industrial commodities vertical and subdued growth in investment-linked sectors.

This is based on our analysis of 435 companies that account for almost half of the listed market capitalisation. These companies posted 8.3% growth in the April-June quarter.

Says Pushan Sharma, Director-Research, Crisil Market Intelligence and Analytics, “Revenue of industrial commodities, investment and construction-linked sectors—collectively accounting for ~38% of our sample set—grew only 1%, weighing down overall performance. The industrial commodities sector, such as coal, saw a 6-7% revenue decline due to lower coal offtake, coal-based power generation and e-auction premiums. In the investment sector, the power segment (~70% revenue contribution), grew just 1% as above-normal monsoon reduced power demand. Among construction-linked sectors, steel revenue fell 2-3% due to price drop led by cheap Chinese imports.”

The cement sector’s revenue growth also slipped 2-3% on a high base of the corresponding quarter last year and lower realisations due to weak prices. Additionally, sluggish government spending after elections slowed construction activity, which, along with above-normal monsoon, limited cement volume growth. The monsoon also impacted the petrochemicals sector, which reported flat on-year revenue growth in the second quarter.

The agriculture sector, including fertilisers (2% of the sample set's revenue), saw a 20-22% drop in revenue due to fall in raw material prices.

On a positive note, the exports segment (~22% of the sample set) grew ~5%. In this space, the pharmaceutical sector maintained its momentum with 11% revenue growth, driven by strong demand in regulated markets and easing of pricing pressure in the US. IT services (~70% of the segment's revenue) experienced a more modest growth of 3-4%, as clients in the banking and financial services sectors in North America and Europe deferred non-essential projects.

Consumer discretionary, staple products and services (~36% of the sample set's revenue) recorded 15% revenue growth. In the consumer discretionary products sector, two-wheeler players saw 15-16% revenue growth, driven by higher volumes due to rural recovery and price rise. The textiles sector saw volume-driven growth, with stable prices. In the consumer discretionary services vertical, telecom services’ revenue rose 12-13%, fuelled by tariff hikes across technologies, premium charges for 5G services and subscriber migration to plans with higher average revenue per user.

The ‘others’ vertical (2% of the sample set), clocked 4% on-year growth. Aluminium (80% of revenue contribution in this category) posted on-year growth of 3-4%, driven by higher global aluminium prices due to lower production in China.

India Inc’s profitability is estimated to have improved 70-90 basis points (bps) on-year during the quarter. The overall earnings before interest, tax, depreciation, and amortisation (Ebitda) for ~435 companies grew ~10% on-year.

Says Elizabeth Master, Associate Director-Research, Crisil Market Intelligence and Analytics, “Among the top 10 sectors, which account for ~75% of revenue, eight saw Ebitda margin expansion, led by export-linked sectors such as IT services and pharmaceuticals, investment-linked sectors such as power, and consumer discretionary sectors such as automotive and telecom services. The two sectors that faced margin contraction were steel, due to higher iron ore prices, and cement, due to subdued pricing.”

For IT companies, Ebitda margin expanded 110-130 bps due to higher employee utilisation and lower attrition rates. In pharma, topline growth and lower raw material costs led to margin expansion of 320-340 bps for formulation players. In the bulk drugs segment, recovery in exports and higher realisations led to 230-250 bps margin expansion. Among investment-linked sectors, a fall in coal e-auction premiums improved margin by 130-150 bps on-year for power generation companies. Among consumer discretionary sectors, telecom services’ margin expanded 120-140 bps due to lower licence fees, spectrum charges and network operating expenses, along with steady revenue growth. In the steel sector, while coking coal prices dipped on-year, iron ore prices rose on global cues, increased export demand and strong domestic demand, resulting in a margin contraction of 40-60 bps on-year. The cement industry's margin also contracted 110-130 bps due to subdued pricing and despite easing cost pressures.