‘India Inc EBITDA margins bottoming’

The EBIDTA margins are likely to increase by 20-40 basis points (bps) year-on-year in July-September 2012 (Q2 FY13) to 18-18.5 per cent.

“We believe that revenue growth will sustain at around 15 per cent,while cost pressures are expected to gradually ease out. The sectors such as cement,power,steel,tyres and textiles are expected to benefit on account of sharp decline in price of commodities like coal,rubber and cotton,” Crisil Research President Mukesh Agarwal explained.

Moreover,he said,rupee depreciation will continue to boost margins of IT services and pharmaceutical sectors.

Crisil Research’s analysis,based on the aggregate financials of 280 large companies across 28 key sectors (excluding banks,oil and gas companies),indicated that Q1

FY13 revenues grew at a marginally slower rate of 17.4 per cent (y-o-y) compared to 17.6 per cent in the same quarter last year,even in a weaker demand environment.

EBITDA margins declined by 100 bps (y-o-y) led by coal,petrochemicals,power,telecom,commercial vehicles and shipping.

Lower operating profits,coupled with higher interest,particularly due to stretched working capital,resulted in net margins declining by 160 bps y-o-y and 100 bps q-o-q,this was despite lower depreciation and tax outgo.

Going forward,EBITDA margins are likely to expand by 20-40 bps y-o-y in Q2 FY13,it said.

“Improvement in corporate profitability will be led by sectors such as IT services,pharmaceuticals,coal,airlines,tyres and sugar,which are expected to witness more than 150 bps y-o-y expansion in EBIDTA margins,” Crisil Research Senior Director Prasad Koparkar said.

Further,he said,for sectors like telecom and petrochemicals,the extent of margin decline y-o-y will be slower compared to the last few quarters due to easing cost

pressures,he said.

On the other hand,few sectors are expected to continue reporting a decline in EBITDA margins.

Overcapacity is expected to result in pricing pressures for hotels and paper and intense competition and slowdown in investments is expected to exert pressure on profitability in capital goods and construction.

Although margins are estimated to have bottomed out overall,any further weakening of demand due to political instability,sharp slowdown in the global economy and adverse movement in input costs could lead to some pressure on margins.