Stating that more sectors will report revenue expansion in the December quarter, rating agency Crisil on Thursday said revenue growth has bottomed out, but margin growth may take more time.
“Revenues, after declining for nine successive quarters, rebounded in the September quarter. However, revenue growth was largely on account of export-oriented sectors benefiting from the weak rupee. But from the third quarter of this fiscal, we expect a gradual recovery in more sectors,” Crisil President (Research) Mukesh Agarwal said in a research note.
He said apart from the export-oriented firms like IT, pharma and textiles, the domestic consumption-linked sectors will see moderate improvement as rural demand is expected to pick up after good monsoons.
The weak growth in investment-linked sectors is not expected to deteriorate further, and the recent clearances from the Cabinet Committee on Investments and lifting of the ban on iron ore mining will lead to a sustained recovery in the sector in 2014-15, he said.
It said analysis of 50 sectors encompassing 605 companies indicated that IT services, pharma, tractors, textiles, FMCG, retail and media will clock double-digit growth in December quarter.
However, revenue expansion will not necessarily help profitability as the agency expects that margins will not expand till FY15. “Improvement in revenue is not expected to lead to higher profitability across all sectors,” Agarwal said.
Crisil senior director Prasad Koparkar said margin expansion will happen only in FY15, once the pricing power returns and added that IT and pharma companies will report a margin expansion of up to 1 percentage point in the December quarter on a weak rupee.
“Margins of the cement, power, airlines and paper sectors, though, are expected to decline because of high input costs,” he said.
“The rise in revenues, though, would not translate to higher profitability. Pre-tax margins during the quarter are estimated to remain stable at 17 percent on a year on year basis,” the report added.
PTI