India's corporate sector revenue grows 15-17% in fourth quarter of FY'21: Report

Mumbai: After eight quarters of either decline or single-digit growth, corporate revenue grew in high double-digits of 15-17 per cent in the March quarter of FY'21 to Rs 6.9 lakh crore, partly because of the low base and better realisation due to higher commodity prices, pushing up their operating profits by a much higher 28-30 per cent, says a report.

With a visible recovery in the second half of fiscal 2021, the overall revenue may be a just 50 bps lower than that of fiscal 2020, according to a pre-earnings forecast by Crisil Ratings on Thursday.

The estimates of 15-17 per cent revenue growth to Rs 6.9 lakh crore in Q4 of FY21 are based on an analysis of 300 companies, which account for 55-60 per cent of the market capitalisation (excluding financial services and oil companies) of the NSE, the agency said, adding operating profit jumped be 28-30 per cent in the quarter.

The robust revenue growth rides on a low base of the year-ago quarter, besides higher government capex and higher realisations amid a commodity upcycle, among others. A closer look at the revenue breakup indicates 50 per cent of the recovery is contributed by automobiles, IT services and construction, according to Hetal Gandhi, a director at the agency who lead the team of analysts.

She also pointed out that this double-digit growth comes after eight quarters of either decline or single digit growth.

With a visible recovery in the H2 of FY21, the overall revenue for these 300 companies is estimated at Rs 23.8 lakh crore, which is a mere 0.5 per cent lower on-year.

The growth is led by construction-linked sectors like steel and cement which are estimated to have posted 45-50 per cent and 17-18 per cent on-year revenue rise, respectively, buoyed by higher realisations and volume. Domestic prices of flat steel and cement are estimated to have rose to 32 per cent and 2 per cent on-year, respectively.

But the picture is not rosy across verticals. A cloud of uncertainty continues to loom over consumer discretionary services such as airlines which likely to have declined 30 per cent amid social distancing and cut in travel budgets. Similarly, revenue for players in media and entertainment is also expected to have dropped 10 per cent due to lower ad spends and subscriptions. Earnings before interest, tax, depreciation and amortisation (Ebitda) is estimated to have jumped 28-30 per cent in the quarter, significantly better than revenue growth.

Mayur Patil, an associate director, explained that demand recovery, higher realisations, and unprecedented fixed-cost cutting measures have enabled a healthy rise in operating margins for six quarters now. But he was quick to warn than rising commodity prices will lead to a decline in margins on a sequential basis. Key raw materials such as steel, aluminium, natural rubber and crude oil have seen double-digit increase from March 2020 levels.

The most affected sectors due to the commodity price increase will steel, cement and pharma, which together account for 30 per cent of aggregate Ebitda profit, are expected to see their margins contract by 380 bps, 230 bps and 160 bps, respectively, on a sequential basis. Despite this, fiscal 2021 will close Ebitda profile rising 12-13 per cent on-year over flat revenue.

The other key sectors covered include aluminium, auto & auto components, capital goods, petrochemicals, construction, FMCG, power, retail, sugar, cotton yarn, telecom services, and tyres. The automobiles industry is expected to record steep growth, pegged at 45-47 per cent on-year, given a low base, higher wholesale sales volumes, and higher realisations led by the implementation of Bharat VI emission norms. This, in turn, is expected to have driven growth for ancillary segments such as auto components and tyres that are estimated to grow a robust 26-28 per cent.

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