Corporate India, whose slow and modest recovery since March quarter came from a cost squeeze rather than a pick-up in demand or pricing power, might have witnessed some acceleration in both revenue and earnings in the September quarter, partly aided by a rise in urban and rural consumption, analysts reckon.
While rating agency Crisil has predicted Q2 revenues of 360 firms in “key sectors” to grow an annual 7 per cent — compared with 6 per cent in June quarter and between 0-2 per cent in four of the past six quarters — on the strength of automobile, retail, pharma and IT companies,
Kotak Institutional Equities (KIE) saw net profits of 182 firms tracked increase 15.3 per cent year-on-year and that of Sensex firms, 4 per cent. The aggregate revenue growth of a basket of 2,045 companies in the June quarter was just 3.2 per cent y-o-y, exclusive of Rajesh Exports, which took the figure to a more respectable 9.2 per cent thanks to an acquisition made in July 2015.
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While consumption by the government was a major driver of economic growth in June quarter, pay increases for its staff and a normal monsoon seem to have supported it in the second quarter of the financial year. However, given the 3.1 per cent decline in additional capital investments in Q1 and a fiscally stressed government’s constraints in keeping the public investment momentum, even the latest corporate results previews are only a stark pointer to the urgency of private investments.
Both Crisil and KIE feel Ebidta (earnings before interest, tax, depreciation and amortisation) margins of India Inc may have improved in September quarter — by 50 bps y-o-y across key sectors, according to the former and by 1.8 percentage points in case of KIE firms. Thanks to the jump in earnings of downstream oil companies, which are rid of subsidy burden, KIE universe’s net profits are estimated to have risen 15.3 per cent y-o-y in Q2 on a moderate 4 per cent increase in sales. Banking sector is seen to have dragged the overall earnings of firms, bound as they are by the high provisions for bad loans. However, on a sequential basis, Ebidta and net income of KIE companies are seen to have declined in Q2, by 6.2 per cent and 5.7 per cent, respectively. Even the yoy growth predicted in Q2 revenue is helped by a low-base effect and, as in the previous couple of quarters, low commodity prices.
Prasad Koparkar, senior director, CRISIL Research, wrote: “We see automobiles reporting 13 per cent (revenue) growth on new launches and rural demand following a good monsoon. Retail is expected to grow 12 per cent on the back of improvement in disposable incomes and India’s economic outlook, while pharmaceuticals, driven by new launches in the US, should see 13 per cent growth. IT services sector is expected to grow 10 per cent, slower than in the past, aided by volume and rupee depreciation.” FE