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For the First Time in 6 Quarters, India Inc’s Margin Seen Up Sequentially: CRISIL

India Inc’s revenue is expected to rise about 14% year-on-year (y-o-y) in the third quarter of this fiscal ended December 2022 to Rs10.9 lakh crore, following a steady rise in volume and some price hikes, and driven primarily by the consumer discretionary segments. On a sequential basis, revenue is seen up 0.9%, and profitability is 140 basis points (bps), says CRISIL Ratings.


Hetal Gandhi, director for research at CRISIL Market Intelligence and Analytics, says, “Revenue growth in the third-quarter growth would be driven by consumer discretionaries such as airlines and automobiles, while construction-linked ones such as steel, aluminium and some industrial commodities such as petrochemicals would underperform. Slowdown winds in the two largest markets abroad for Indian businesses – US and Europe – will curtail ITeS (BPO services) and lead to a contraction in the exports of gems & jewellery and textiles as consumers there cut spending.”


A CRISIL MI&A Research’s analysis of over 300 companies, excluding those in the financial services and oil and gas sectors, indicates as much. 



For the nine months to December 2022, revenues of India Inc are seen up about 24% y-o-y, while the margin likely crunched around 400 bps. Of the 47 sectors tracked, the rating agency expects 20 to outpace overall revenue growth in the third quarter, while three-fourths should see operating margin contracting on-year. 


In the report, the rating agency says, “Operating margin likely contracted 270 bps yoy, slower than in the past two quarters – as easing commodity prices provided succour amid moderating revenue growth. However, this would mark the fifth quarter of on-year contraction. On a sequential basis, however, the operating margin would rise for the first time in six quarters to 18%-19% in the third quarter from 17.2% in the second. The number has been falling since touching 23.7% in the first quarter of last fiscal.”  


While revenue for airline services should ascend 41% on-year following a significant rise in passenger traffic and fares, for automobiles, it should drive past 22% on higher domestic volume and realisations for vehicle makers. 


IT services are seen largely apace with the overall revenue trend, growing 13% on-year, the report says, adding the revenue of construction-linked companies is seen up a fifth on a healthy rise in capex allocations by central and state governments for infrastructure build-outs, healthy growth in the order book, and improved execution. 


Sehul Bhatt, associate director for research at CRISIL Market Intelligence and Analytics, says, “Operating margins in the automobile, metals and construction sub-sectors, which had contracted in the second quarter, reversed trend sequentially in the third quarter. Of the 20 sectors expected to outpace revenue growth, ten should see a margin contraction and five marginal improvements. Companies are still not able to fully pass on higher commodity prices.”


According to the report, the operating margin in steel products likely contracted more than 800 bps on-year due to a 15%-20% on-year correction in flat steel realisations and costlier iron ore and coking coal. It says, “Construction-linked sectors and industrial commodities would see a margin contraction of 500 bps on-year, largely due to elevated input cost and inability to pass it on to customers. For cement makers, the margin is seen contracting 230 bps yoy, again due to higher input cost.”


Jignesh Surti, manager for research at CRISIL Market Intelligence and Analytics, says, “Prices of key energy linked commodities such as crude oil and non-coking coal are expected to be moderately higher yoy but fall significantly sequentially from multi-quarter highs of the past three-four quarters. A continuation of this trend is crucial for the sustenance of, and improvement in, profit margins because growth in realisations could be limited in key sectors.”


Margins of all major verticals are expected to contract y-o-y, barring consumer discretionary, which should see a slight rise, and consumer staple services. The margin expansion in consumer staple services will be supported by higher average room rates in the hospitals sector, the rating agency says.

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