Price Hikes Rather Than Volume Growth Driving Revenue Momentum of India Inc: CRISIL
Moneylife Digital Team 11 January 2022
After 11 quarters, the earnings before interest, taxes, depreciation and amortisation (EBITDA) margin of Indian companies is likely to fall during the third quarter (Q3). While India Inc sustained revenue momentum, it was driven by price hikes rather than volume growth, says a research note by rating agency CRISIL. 
The report says, “Corporate revenue is seen growing a healthy 16-17% to Rs9.1 lakh crore, driven by surging commodity prices. Though revenue growth is in line with expectations, the underlying reasons have changed over the past three quarters. While volume growth continued to underperform, price hikes provided some offset.”
Corporate profitability, as defined by EBITDA margin, likely dropped 100-120 basis points (bps) year-on-year (y-o-y) and 70-100bps sequentially in the third quarter ended 31 December 2021, shows CRISIL’s analysis of 300 companies, excluding those in the financial services, and oil & gas sectors.
For the first nine months of this fiscal, the rating agency says, EBITDA margin is seen up 80-100bps y-o-y to 22%-24%, aided by the low base of last year. EBITDA profit growth should moderate to 10%-12% on-year, compared with a scorching about 47% clocked in the first half of this fiscal year—a number that was also bolstered by the low-base effect, it added.
This marks the first y-o-y decline in 12 quarters and as many as 27 of 40 sectors tracked by CRISIL Research are likely to see their EBITDA margins shrinking.
Drishti Chugh, senior research analyst of CRISIL Research, says, “In absolute terms, revenues of most sectors have now risen above their pre-pandemic levels, barring airlines and hospitality. But sectors linked to consumer discretionary products have been a drag on overall corporate revenue, which likely grew 7-9% on-year due to lower volume growth. Among other segments, export-linked ones have continued to drive traction with a growth of 15-17% on-year, though this has not quite helped maintain their margins.”
In automobiles, the sales volume of commercial vehicles likely grew 8% y-o-y, while cars and two-wheelers may have dropped 9% and 20%, respectively. However, realisations could be higher — at 12% in passenger cars and utility vehicles, 7% for two-wheelers and 9% for commercial vehicles, y-o-y—due to price hikes and favourable product mix. That, according to CRISIL, would take the overall auto segment revenue growth to about 4% y-o-y.
It says, “Lower-than-expected auto production amid semi-conductor shortage would also reflect in steel sales volume, which likely slipped around 7% on-year.” 
Hetal Gandhi, director of CRISIL Research, says, “Companies were unable to fully pass on soaring input cost, especially key metals and energy prices. Flat steel prices were 48% higher on-year in the third quarter, while aluminium was up 41%. The price of Brent crude surged nearly 79%, while those of spot gas and coking coal rocketed almost 5.4 times and 2.4 times, respectively, on-year.”
In the consumer business segment, leading fast-moving consumer goods (FMCG) players effected price hikes of 6%-8% in the first half of this fiscal and prices likely remained high even in the reporting quarter.
According to the rating agency, revenues from export-linked sectors such as IT services likely spurted 18-20% on-year, aided by the rising share of digital transformation and possible revival of deferred projects. Revenue for pharma companies is seen growing at 6%, while for readymade garments and cotton yarn makers, it’s seen up 30%-35% on-year amid higher exports, it added.
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