India Inc Q4 revenue growth to be tepid; may improve in FY15

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Revenue growth of India Inc may remain subdued at 7-9 per cent in the last quarter of the just concluded fiscal, but it will gradually improve to 11-12 per cent in FY 2014-15, rating agency Crisil has said in a report.

Revenue growth for Indian corporates (excluding financial services and oil firms) is expected to come in at a subdued 7-9 per cent Y-o-Y for the quarter ended March 31.

Export-oriented sectors will continue to witness robust revenue growth, led by rupee depreciation, while in infrastructure-and investment-linked sectors, growth will be subdued owing to a weak investment climate, the Crisil Research report said.

The revenue growth is expected to improve to 11-12 per cent in FY15 with implementation of stalled projects recovery in industrial output with increasing domestic and export demand as well as improving consumer sentiment, it said.

"Revenue growth and operating profitability have bottomed out and will now gradually improve, assuming that a stable government will be in place post-election.

"Revival of stalled projects post the policy initiatives undertaken over the last 12-18 months, recovery in industrial output due to increase in demand and higher growth in exports led by improvement in global GDP will enhance revenue growth to 11-12 per cent in 2014-15," Crisil Research President Mukesh Agarwal said.

Overall revenue growth will continue to be supported by sectors such as IT, pharma, readymade garments and cotton yarn, which benefit from currency tailwinds. Despite recent gains against the dollar, the rupee's average exchange rate during Q4, FY14 was nearly 14 per cent weaker Y-o-Y, it said.

Additionally, growth momentum in consumption-linked sectors such as telecom, retail and media, which have seen a recovery over the last three quarters, will sustain.

EBITDA margins for the quarter are likely to remain unchanged at 17-17.5 per cent given the continued weakness in investment-linked sectors on account of delays in land acquisition, clearances and project execution.

But export-led sectors, together with telecom, should see their margins expand by 150-200 basis points (1.5-2 per cent). Net profit margins are expected to be under pressure in Q4 FY'14, particularly for construction, real estate, metals and capital goods sectors, the report said.

The overall income of public sector banks is expected to slow down to 9-10 per cent Y-o-Y in Q4 as against 11 per cent increase seen during the same quarter last year due to weak credit growth, rising proportion of non-earning assets in their portfolio of banks in addition to pressures of interest rate pricing. The weak growth in advances will cause the slower growth in interest income, Crisil said.

The revenues of auto sector are expected to increase by 9 per cent Y-o-Y in Q4FY 14, despite weak domestic demand. Growth will continue to be aided by a rise in revenues of Tata Motors JLR business and higher export realisations, it said.

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