Rating agency Crisil said in its latest report that corporate profitability, as defined by profit margin before interest, taxes, depreciation and amortization (EBITDA), is expected to have declined by 100 to 120 basis points (bps) or from 1 to 1.2%. on an annual basis (year-on-year) and 70 to 100 basis points on a sequential monthly basis in the third quarter of the current fiscal year.
The rating agency analyzed 300 companies active in various industries, including oil and gas, financial services and manufacturing. The agency monitored 40 sectors of which 27 sectors have the potential to report declining EBITDA margins.
“Companies have not been able to fully pass on soaring input costs, especially the prices of key metals and energy. Prices for flat steel rose 48% year-on-year in the third quarter, while aluminum was up 41%. The price of Brent crude jumped almost 79%, while spot gas and coking coal prices climbed nearly 5.4 times and 2.4 times respectively, ”said Hetal Gandhi, director of Crisil. .
The study comes as economists around the world have asserted a strong recovery in the global economy in the third quarter ending in December 2021. The Reserve Bank of India (RBI) in its recent monetary policy forecasted growth of the Indian economy by 6.6% from October to December 2021. quarter and 6% during the quarter from January to March 2022. The central bank also forecasts growth of the Indian economy of 9.2% for the full year 2021-22 (April – March) from a weak base. The lockdowns induced by Covid pushed the Indian economy into a 7.3% contraction (negative growth) in the previous fiscal year, namely 2020-2021.
Today, Crisil expects consumer discretionary margins to fall 1.3 to 1.5 percent year-on-year, and 2 to 2.5 percent in export-related activities. IT services are expected to see their margins contract by 2.3-2.5% due to the increase in outsourcing, while steel products and pharmaceuticals could experience a contraction of 1.1 to 1, 3% each due to rising input costs.
For the first nine months of this fiscal year, the EBITDA margin is up 80-100 basis points year-on-year to 22-24%, thanks to the weak base last year. EBITDA earnings growth is expected to moderate to 10-12% year-on-year, however, from a scorching rate of around 47% recorded in the first half of this year, a figure also bolstered by the weak base effect. Business revenues are expected to increase 16-17% to 9.1 lakh crore, due to the surge in commodity prices.
“In absolute terms, revenues for most industries are now above their pre-pandemic levels, with the exception of airlines and hospitality. But sectors related to consumer discretionary products weighed on overall company revenues, which are expected to rise 7-9% year-on-year on weaker volume growth. Among other segments, the export-related segments continued to perform well with 15-17% year-on-year growth, although this did not really help maintain their margins, ”Drishti said. Chugh, Senior Research Analyst, Crisil.
While revenue growth is as expected, the underlying reasons have changed over the past three quarters. As volume growth continued to underperform, price increases partially offset. In the automotive sector, the sales volume of commercial vehicles is expected to increase by 8% year-on-year, while for cars and two-wheelers it may have declined by 9% and 20%, respectively. However, the achievements could be higher, at 12% for passenger cars and commercial vehicles, 7% for two-wheelers and 9% for commercial vehicles year-on-year, due to price increases and a mix favorable product. This would bring overall automotive segment revenue growth to around 4% year-on-year.
At the same time, a sharp increase in the number of new cases of coronavirus (Covid) driven by its new mutant Omicron, rekindled uncertainty in the business environment for the January – March quarter 2022. From the level of around 8,000 in early December , the number of new cases of Covid rose to 179,723 on Monday, an increase of more than 22 in just one month.
According to Surendra Sharda, Director, Accura Polyplast Pvt Ltd, an Ahmedabad-based PVC pipe manufacturer, so far there has been no business impact on manufacturing, distribution on consumption in the plastics sector. , but the recovery has become a bit difficult.
Several state governments and local authorities have imposed sporadic restrictions to further contain its spread.
“Omicron’s impact will be felt throughout the blockages. Sectors like hospitality, tourism, shopping malls, entertainment and aviation will certainly be affected. Industrial production in the fourth quarter is expected to be affected by services, with a secondary impact on the manufacturing sector as spending slows. The Indian economy is expected to decline by 10 to 20 basis points on this point, ”said Madan Sabnavis, chief economist, Bank of Baroda.
DILIP KUMAR JHA