India Inc aims to double revenue growth by 2019 Q2

Led by steel firms, India Inc is likely to double its revenue growth in the second quarter of fiscal 2019, primarily due to the base effect, said a report.

Corporates are set to log in 12.1 percent topline growth in September quarter, up from 6.4 percent in the same period last fiscal year, as steelmakers are set to clock an 80 basis point (bps) higher margins, rating agency Crisil said in its report Thursday.

On the flipside, the report said cost pressure is clearly rising across the board. It said aggregate operating margins would be up 5-10 bps in the second quarter, but this would be primarily due to the performance of steel-makers, adding that barring steel, the number is down by around 70 bps.

"If cost pressures continue to rise, the gradual ascent in operating margins seen from the fourth quarter of last fiscal can reverse," the agency said based on its reading of 365 companies, which excludes banking, financial services, and insurance, and oil companies.

These 365 companies account for about 65 percent of the market capitalization of the NSE. According to Prasad Koparkar, a senior director at Crisil, demand recovery is expected to be driven by discretionary, consumption-led sectors like airlines, automobiles, fast-moving consumer goods (FMCG) and retail.

"While automobiles are expected to see an 18 percent sales growth, airlines should see passenger traffic rise 16 percent on-year," he said.

Retail, FMCG, and automobiles will benefit from the low-base effect caused by the rollout of GST in July last year, Koparkar said, adding makers of steel and aluminum, and coal miners will benefit from improved sales, while cement companies will be helped by higher volumes.

Investment-linked sectors like housing and capital goods have also been supportive because of public spending, according to him. Higher crude prices and falling rupee are also skewing the input cost math for companies.

Crude is up 45 percent on-year, while the rupee, which fell 4 percent in the first quarter, has lost 9 percent more in the second quarter, he said. Rahul Prithiani, a director at the agency, said, "Oil and the rupee will impact the cost structures of most sectors.

Additionally, domestic prices of coal, long steel, flat steel, and aluminum are expected to rise 15, 14, 17 and 12 percent, respectively. That would add to the cost pressure for end-use sectors."

Airlines, automobiles, aluminum and cement companies will be the sectors bearing the brunt of the rising cost of raw materials, according to the report.

However, margins for steel are expected to improve significantly due to an uptick in realizations, it said, adding conversely, the rupee fall will prop revenue growth for export-linked sectors, especially IT and pharma.