Indian companies’ revenue growth in the April-June quarter could be the weakest in the last six quarters due to demand moderation, said Crisil Research.
Given the slowdown in economic activity and gross fixed investments, revenue growth in April-June 2012 (Q1 FY13) is forecast to drop to around 14 per cent from 17.5 per cent in the first quarter FY12.
The revenue growth in Q1 FY13 is expected to be much weaker due to a sharp deceleration in airlines, auto components, commercial vehicles, hotels, metals, organised retail, real estate and textiles.
Crisil Research’s analysis is based on the aggregate financial performance of 247 large companies across 26 sectors (excluding banks and oil & gas companies).
Depreciation charges as a percentage of revenues for Indian companies fell to its lowest level in the last 10 years, while growth in fixed asset creation was at its lowest in the last five years, reflecting the sharp deceleration in the investment cycle, it said.
“While policy logjam and higher cost of capital have severely dented the investment cycle, persistent inflation, economic uncertainty and high retail lending rates are weighing on consumer sentiment, thereby, affecting consumption growth.
“We believe demand growth will continue to remain weak going forward, as interest rates are likely to remain high for longer than anticipated.
“The deceleration in fixed capital investments growth may lead to further slowing of consumption demand,” said Mr Mukesh Agarwal, President, Crisil Research.
EBITDA margins
EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins are projected to decline by 100-150 basis points (bps) on a year-on-year basis to around 19-20 per cent, but remain flat compared with Jan-March 2012 quarter (Q4 FY12).
EBIDTA margin is also known as operating margin. It is an indicator of profitability of companies emanating from core business operations before accounting for any interest, asset depreciation charges, extraordinary income and taxes.
Although, overall EBITDA margins are expected to remain flat for Q1 FY13 on a quarter-on-quarter (q-o-q) basis, 15 of the 26 sectors will continue to face margin pressure.
“For sectors like commercial vehicles, cement, construction and real estate, EBITDA margins are forecast to contract by 100-200 bps q-o-q, due to slower demand growth and high input costs,” said Mr Prasad Koparkar, Senior Director.