Corporates report plunging revenue growth, lower margins in Q4 FY19: ICRA

New Delhi: The fourth quarter (January to March 2019) financial results released by 304 companies in the corporate sector show a sequential drop in revenue growth to 10.7 percent from 20.1 percent in the previous quarter (October to December 2018), according to investment information and credit rating agency ICRA.

A key reason for the dip in revenue growth was weak consumer sentiment as reflected by a decline in automobile sales, decline in volume growth across fast moving consumer goods (FMCG) companies, weak demand for consumer durables and tepid demand for decorative paints.

Among various consumer-oriented sectors, only companies in the consumer foods sector reported healthy volume growth during the quarter. As a result, the overall revenue growth in consumer-oriented companies in ICRA’s sample was only 2.3 percent in Q4 FY 2019.

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The revenue growth for commodity-linked sectors in ICRA’s sample was 12.4 percent in Q4 FY19 year-on-year basis, which was driven by healthy volume growth in cement and steel sector, and higher realizations for oil and gas entities.

Among others, the IT sector reported strong revenue growth of 17.6 percent in Q4 FY 19 (in rupee terms) supported by a higher dollar exchange rate. The revenue growth on a dollar basis was 7.8 percent for a sample of major IT companies.

The aggregate earnings before interest, tax, depreciation and amortisation (EBITDA) margin for companies in ICRA’s sample declined by 78 basis points year-on-year to 16.8 per cent because of factors like lower absorption of overhead costs due to decline in sales (auto original equipment manufacturers), adverse product mix, higher input costs and higher fuel prices.

However, the aggregate EBITDA margin grew by 92 basis points on a sequential basis because of sequential easing of commodity prices, appreciation in rupee leading to lower cost of imports, price hikes in several sectors leading to lower cost pressures.

The first quarter (April to June) 2019-20 performance is also expected to remain muted due to continued weakness in consumer-linked sectors and uncertainty related to the general elections. This is reflected in the 17.1 percent decline in passenger vehicle wholesale dispatch and a 16.4 percent decline in two-wheeler wholesale dispatch year-on-year basis.

Responses from some other sectors like construction equipment manufacturers, commercial vehicle OEMs, and auto component manufacturers indicate weak performance in the current quarter.
Although the muted consumer sentiments will have an adverse impact on the revenue growth, factors such as benign commodity prices (steel, sugar and some other non-ferrous metals) will support profitability indicators to an extent.

The profitability indicators could come under pressure if the global oil prices continue upward trajectory, said ICRA in the report titled ‘Indian Corporate Sector: Q4 FY2019 Performance Review and Outlook.’


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