CRISIL Expects Stable Margins For India Inc. In Q3FY13

India's largest independent and integrated research house, CRISIL, has come out with a report on India Inc.'s performance in the Dec 2012 quarter.

In the last quarter (Sept 2012), according to CRISIL’s report, volumes-led pressure led to a sluggish demand in the Auto, Metals, Hotels and Housing sectors, while a weak execution of projects impacted the Capital Goods sector. IT and Pharmaceuticals, on the other hand, were benefited due to the depreciation seen in the rupee. Though the volumes remained weak, the Cement, FMCG and Sugar industries were helped by higher realisations. Lower coal prices improved the margins of power generation companies. The overall EBITDA margins improved by 20 basis points in the Sept quarter.

Looking Ahead

For the Dec 2012 quarter, CRISIL expects a moderate revenue growth of 11%-13% to be continued despite a weak demand scenario. It expects the EBITDA margins of Corporate India to remain steady.

The research house has also given an industry-specific view, in which it expects Airline, Cement and Sugar companies to record higher realisations again, leading to some boost in margins. Margins improvement in the Tyre and Power sectors would be seen due to weak rubber and coal prices. Those in the Ports sector may come in higher due to better utilisation, while for the Hotel industry, these may show a dip for exactly the opposite reason.

The Steel industry is expected to witness weak margins due to liquidation of high cost inventory. Execution has been an issue in Capital Goods for a nearly a year now, and the industry may continue to see lower margins. The Construction sector is expected to witness a decline in margins due to higher raw material prices.

IT and Pharmaceuticals may reflect the advantage of a weaker rupee, while the defensive Pharma sector may have steady margins. The Power generation sector is also expected to witness a jump of 18%-20% in revenues due to tariff revisions and capacity additions, and the EBITDA margins may also come higher due to declined coal prices.

A press release by CRISIL Research quoted its president Mukesh Agarwal as saying, “We believe that revenue growth will remain under pressure due to weak consumer sentiment and sluggish investment cycle. Slower volume growth is likely to constrain revenue expansion, mainly in sectors such as Automobiles, FMCG, Capital Goods and Metals. On the other hand, the EBITDA margins will be supported by increasing realisations and softening prices of commodities such as coal, rubber and cotton. In addition, stringent cost control by corporates across sectors would further cushion margins.”