Indian corporate sector’s aggregate revenues have grown by 17.1% during the first quarter (Q1 FY 2019), on a Y-o-Y basis compared to Q1 FY 2018. As per ICRA Research, 660 companies in the Indian Corporate Sector and; 26 sectors out of 32 sectors under coverage, showed broad-based revenue growth. While consumer-oriented sectors (auto OEMs, FMCG, consumer durables, restaurants and airlines) and commodity-linked sectors (cement, Iron & Steel and Oil & Gas) continue to do well, sectors like capital goods, pharmaceuticals, media and fertilizers have also witnessed strong revenue growth in Q1 FY 2019.
Says, Mr. Shamsher Dewan, Vice President and Group Head, Corporate Sector ratings, ICRA, “This growth has been achieved on low-base, adversely impacted by GST implementation in Q1 FY 2018 besides, healthy consumption-driven demand as well as pick-up in infrastructure spending. However, on a Q-o-Q basis, sales declined by 2.4% because of seasonality in several sectors.”
Sectors that witnessed decent margin improvement were metals and mining (including iron & steel) due to up-tick in commodity prices and; the consumer food sector, supported by lower input costs like milk and sugar. Sectors like consumer goods, paints, FMCG and Auto OEMs expanded their OPM marginally as they partially absorbed raw materials price hikes to mitigate the impact. On the other hand, the margins of the airlines, tiles & ceramics and cement sector witnessed significant erosion in margins due to rising fuel prices, while factors like subdued realizations (sugar), charter rates (shipping), decline in APRUs and rise in network costs (telecom) too exerted pressure on earnings of companies.
As for the trends in sectors which performed well:
Coming to key sectors where performance is not so strong, ICRA’s analysis indicates earnings pressure since past few quarters in telecom, sugar and shipping.
Concludes Mr. Dewan, “Overall operating profit margin (OPM) of our sample increased by ~130 basis points to 17.2 % in Q1 FY 2018, despite rising inflationary pressures on the raw material front. This is attributed to the benefits of operating leverage and price hikes affected by companies across many sectors to offset the impact of rising fuel and commodity prices. Further, the improvement in profit margins led to a marginal improvement in the aggregate interest coverage ratio of the current sample to 4.5x as compared to 4.2x during the quarter.”
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