‘Profitability to be under pressure during Q1 FY 12’
Corporate India’s profitability is expected to remain under pressure during April-June, 2011 due to rising input costs, moderation in volume growth and increased competition, CRISIL Research said.
Based on an analysis of the aggregate financial performance of select companies (excluding oil refining and marketing companies) across 23 industries, we expect revenues to grow by a robust 23 per cent, but EBITDA margins are forecast to decline, CRISIL said.
Revenue growth
During the first quarter of 2011-12, revenue growth is likely to be largely driven by higher price realisations. However, the price increases will not be enough to compensate for rising cost pressures.
“While EBITDA margins would stabilise on a sequential basis, we expect margins to decline by about 200 basis points on a y-o-y basis because of high input costs and rising wages. Companies are being forced to partly absorb the rising costs, as slower volume growth and intense competition are restricting their pricing flexibility.
“Further, with increase in interest rates, we expect net margins to fall even more sharply,” Industry and Customised Research, Head, Prasad Koparkar said.
Sectoral growth
EBITDA margins for steel and cement sectors will drop sharply by 500-600 basis points (bps) and 800 bps, respectively, on a y-o-y basis, due to rising raw material and energy costs.
Real estate and auto sectors will be further impacted by a slowdown in demand. The IT sector, on the other hand, will witness strong volume growth and higher billing rates because of the revival in global IT spends Despite this, margins of IT players are forecast to decline by around 250 bps year-on-year due to rising wage costs, CRISIL research said.
