ICRA: Revenue Growth In Q4 FY2019 Hits Six Quarter Low Led By Weak Consumer Sentiments
The financial results of the Indian corporate sector (ICRA’s sample of 304 companies) have hit a six-quarter low, registering a revenue growth of 10.7 % in Q4 FY2018-19. The key reason for the decline in revenue growth was weak consumer sentiments and softening of commodity prices. The revenue growth in consumer-linked sectors in the sample was 2.3% in Q4 FY2019 on a Y-o-Y basis, down from 9.8% in Q3 FY2019. Comparatively, the revenue growth in commodity-linked sectors was at 12.4% in Q4 FY2019 on a Y-o-Y basis, down from 31.0% in Q3 FY2019.
Commenting further, Mr Shamsher Dewan, Vice President - Corporate Sector Ratings, ICRA said, “The weakness in the consumer-linked sectors was visible in the decline in wholesale dispatches of passenger vehicles and two-wheelers in Q4 FY2019 and sequential decline in same-store sales growth of quick-service restaurants and retail chains and even FMCG companies. The decline in consumer sentiments was reported in both urban and rural segments, as reported by Auto OEMs and FMCG companies.” The commentary on rural growth from Auto OEMs and FMCG companies too indicate a slowdown in growth which can be attributed to a muted rabi harvest.
The EBITDA margin of ICRA’s sample declined by 78 bps on a Y-o-Y basis to 16.8% but reported a 93-bps improvement sequentially because of price hikes initiated by companies in select sectors, lower cost of imports (benefits of improvement in INR vis-a-vis US$ in Q4 compared to Q3) and softening in commodity prices.
“Although commodity prices were higher on a Y-o-Y basis for both FY2019 and Q4 FY2019, there was a softening in prices of key commodities such as oil, steel and aluminium on a sequential basis which supported an improvement in the EBITDA margins on a Q-o-Q basis,” reported Mr Dewan.
The interest coverage ratio adjusted for sectors with low debt levels (IT, FMCG and Pharmaceuticals) witnessed a decline to 3.8x from 4.7x in Q4 FY 2018. This was because the growth in absolute EBITDA (5.7% on a Y-o-Y basis) was significantly lower than the increase in interest costs (26.6% on a Y-o-Y basis). The sharp increase in interest cost was because of higher interest rates and an increase in debt levels, including working capital.
In terms of sector-specific trends, consumer-linked sectors except for FMCG and Consumer Food reported weak results. Within the automobile sector, the Passenger Vehicle segment registered a decline of 2.0% in domestic sales in Q4 FY2019 on a Y-o-Y basis because of high base and weak customer sentiments, partly contributed by rising ownership costs (Fuel, EMIs and Insurance). The two-wheeler wholesale dispatches declined 9.0% in Q4 FY2019 because of weak consumer sentiments and high inventory levels. Although FMCG companies reported healthy volume growth, management commentary from the sector indicates a deceleration in growth, especially in the rural segment.
Among other sectors, IT companies reported healthy revenue growth of 7.8% (in USD terms; for six large IT companies) supported by continued traction in digital offerings and improving momentum in BFSI. The EBIT margins remained subdued Q-o-Q due to rupee appreciation, investments in digital and front-ended investments in certain large deals.
The domestic steel consumption witnessed a 6.5% growth in Q4 FY2019. However, the hot-rolled coil prices declined 3.3% on a Y-o-Y basis in Q4 FY2019. The cement sector reported healthy growth in Q4 FY2019 with production increasing 11.9% in Q4 FY2019 on a Y-o-Y basis supported by to pick up in infrastructure projects, irrigation sector and affordable housing.