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EBITDA margins to drop 200 bps in Q3 FY12; Net profits to de-grow due to high interest costs
and marked-to-market losses
CRISIL Research expects corporate India to report a 200 basis points (bps) decline in earnings before
interest, taxes, depreciation, and amortisation (EBITDA) margins in October-December 2011 (Q3
FY12). While revenue growth is forecast to drop following a slowdown in consumption growth and
sluggish investment activity, the pressure on net profits would be more acute.
Based on an analysis of the aggregate financial performance of select companies across 21 industries
(excluding banks and oil companies), CRISIL Research expects year-on-year (y-o-y) revenue growth of
around 14-15 per cent in Q3 FY12, as compared to a far healthier 22.5 per cent in Q3 FY11. We
forecast EBITDA margins to decline by 200 bps in Q3 FY12 from 19.7 per cent in the corresponding
period last year, mainly on account of slower volume growth and high cost of inputs coupled with
limited pricing flexibility. Companies with substantial debt on their balance sheet will be further hurt
by increased interest costs and marked-to-market losses reported on foreign currency debt and
derivatives due to the depreciation of the rupee. Net margins are, therefore, likely to decline even
more sharply.
The pressure on EBITDA margins will be felt across industries, though companies in consumptionlinked
and interest rate sensitive sectors will be most vulnerable. During Q3 FY12, we anticipate a
sharp drop of 300-500 bps y-o-y in margins for textiles, real estate and hotels mainly due to slower
volume growth and high raw material and wage costs. EBITDA margins for automobiles, steel, and
organised retail even are likely to decline by 100-200 bps. Airline companies are expected to report
robust volume growth, but their EBITDA margins will remain under pressure, as these companies will
be unable to fully pass on the sharp rise in fuel costs. For cement manufacturers and telecom
services providers, though volume growth would be muted, increased realisations will lend stability
to EBITDA margins.
The depreciation of the rupee will not hurt all of corporate India. Companies with substantial export
earnings such as IT services companies, bulk drug exporters, pharmaceutical companies that focus on
formulations exports, and oil exploration companies with low proportion of debt on their balance
sheets, stand to gain from a weak rupee as their profitability will improve. IT companies derive more
than 85 per cent of their revenues from customers outside India. For bulk drug players, exports are
about 80-85 per cent of their revenues, while for companies in formulations, export earnings are
about 40 per cent of revenues.
Preview of financial performance of key sectors for Q3 FY12
Preview: October-December 2011
Interest rate sensitive sectors
Automobiles Moderate revenue growth of 8-10% y-o-y expected across segments, with twowheelers
registering the highest revenue growth. EBITDA margins to remain stable
on a q-o-q basis.
Housing Revenue growth to continue to be under pressure due to lower offtake. EBITDA
margins to moderate on a y-o-y basis, although it will improve on a q-o-q basis as
the pace of construction is expected to be slower than the pace of bookings.
Interest costs would continue to impact profitability.
Preview: October-December 2011
Consumption-linked sectors
Airline services Revenues to increase by 16-18% y-o-y, driven by higher volumes and realisations.
Profitability to remain under pressure as players will be unable to fully pass on the
sharp rise in fuel costs.
Hotels Subdued growth in foreign tourist arrivals to continue to put downward pressure on
RevPARs.
Organised retailing Revenue growth to dip sharply to 12-14% from 29% growth in October-December
2010, due to weak consumer sentiment.
Telecom services Revenue growth to remain healthy at 15-16% y-o-y. ARPU and RPM set to improve
as operators hike tariffs.
Textiles Revenues of cotton yarn manufacturers to increase by only around 2% y-o-y due to
a fall in yarn prices and low demand. EBITDA margins to remain flat at 6-7%.
Preview: October-December 2011
Global commodity-linked sectors
Refining & marketing Overall revenues to decline by 6-7% q-o-q, in-line with an expected decline in
product prices and refinery shutdowns. GRMs of standalone refineries to be in the
range of $7-8 per barrel and that of refining and marketing players would be $3-4
per barrel.
Steel products Revenue growth of 12-14% y-o-y to be driven by higher realisations. High raw
material costs expected to continue to pull down profitability
Investment demand-linked sectors
Cement Although volume growth would be muted at 4-5% y-o-y, realisations are expected to
be higher by around 25%. EBITDA margins are expected to be marginally higher at
around 18% on a y-o-y basis.
Construction Revenues to rise by 8-10% y-o-y. EBITDA margins to decline due to pressures on
contract pricing, especially in road projects.
Preview: October-December 2011
BFSI
Banking Total income growth to moderate slightly due to slowing credit demand. Net
interest income to grow by around 19% vis-à-vis around 41% in the same quarter
last year due to rising interest expenses. GNPAs for the banking system are
projected to touch 3% by March 2012.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EBITDA margins to drop 200 bps in Q3 FY12; Net profits to de-grow due to high interest costs
and marked-to-market losses
CRISIL Research expects corporate India to report a 200 basis points (bps) decline in earnings before
interest, taxes, depreciation, and amortisation (EBITDA) margins in October-December 2011 (Q3
FY12). While revenue growth is forecast to drop following a slowdown in consumption growth and
sluggish investment activity, the pressure on net profits would be more acute.
Based on an analysis of the aggregate financial performance of select companies across 21 industries
(excluding banks and oil companies), CRISIL Research expects year-on-year (y-o-y) revenue growth of
around 14-15 per cent in Q3 FY12, as compared to a far healthier 22.5 per cent in Q3 FY11. We
forecast EBITDA margins to decline by 200 bps in Q3 FY12 from 19.7 per cent in the corresponding
period last year, mainly on account of slower volume growth and high cost of inputs coupled with
limited pricing flexibility. Companies with substantial debt on their balance sheet will be further hurt
by increased interest costs and marked-to-market losses reported on foreign currency debt and
derivatives due to the depreciation of the rupee. Net margins are, therefore, likely to decline even
more sharply.
The pressure on EBITDA margins will be felt across industries, though companies in consumptionlinked
and interest rate sensitive sectors will be most vulnerable. During Q3 FY12, we anticipate a
sharp drop of 300-500 bps y-o-y in margins for textiles, real estate and hotels mainly due to slower
volume growth and high raw material and wage costs. EBITDA margins for automobiles, steel, and
organised retail even are likely to decline by 100-200 bps. Airline companies are expected to report
robust volume growth, but their EBITDA margins will remain under pressure, as these companies will
be unable to fully pass on the sharp rise in fuel costs. For cement manufacturers and telecom
services providers, though volume growth would be muted, increased realisations will lend stability
to EBITDA margins.
The depreciation of the rupee will not hurt all of corporate India. Companies with substantial export
earnings such as IT services companies, bulk drug exporters, pharmaceutical companies that focus on
formulations exports, and oil exploration companies with low proportion of debt on their balance
sheets, stand to gain from a weak rupee as their profitability will improve. IT companies derive more
than 85 per cent of their revenues from customers outside India. For bulk drug players, exports are
about 80-85 per cent of their revenues, while for companies in formulations, export earnings are
about 40 per cent of revenues.
Preview of financial performance of key sectors for Q3 FY12
Preview: October-December 2011
Interest rate sensitive sectors
Automobiles Moderate revenue growth of 8-10% y-o-y expected across segments, with twowheelers
registering the highest revenue growth. EBITDA margins to remain stable
on a q-o-q basis.
Housing Revenue growth to continue to be under pressure due to lower offtake. EBITDA
margins to moderate on a y-o-y basis, although it will improve on a q-o-q basis as
the pace of construction is expected to be slower than the pace of bookings.
Interest costs would continue to impact profitability.
Preview: October-December 2011
Consumption-linked sectors
Airline services Revenues to increase by 16-18% y-o-y, driven by higher volumes and realisations.
Profitability to remain under pressure as players will be unable to fully pass on the
sharp rise in fuel costs.
Hotels Subdued growth in foreign tourist arrivals to continue to put downward pressure on
RevPARs.
Organised retailing Revenue growth to dip sharply to 12-14% from 29% growth in October-December
2010, due to weak consumer sentiment.
Telecom services Revenue growth to remain healthy at 15-16% y-o-y. ARPU and RPM set to improve
as operators hike tariffs.
Textiles Revenues of cotton yarn manufacturers to increase by only around 2% y-o-y due to
a fall in yarn prices and low demand. EBITDA margins to remain flat at 6-7%.
Preview: October-December 2011
Global commodity-linked sectors
Refining & marketing Overall revenues to decline by 6-7% q-o-q, in-line with an expected decline in
product prices and refinery shutdowns. GRMs of standalone refineries to be in the
range of $7-8 per barrel and that of refining and marketing players would be $3-4
per barrel.
Steel products Revenue growth of 12-14% y-o-y to be driven by higher realisations. High raw
material costs expected to continue to pull down profitability
Investment demand-linked sectors
Cement Although volume growth would be muted at 4-5% y-o-y, realisations are expected to
be higher by around 25%. EBITDA margins are expected to be marginally higher at
around 18% on a y-o-y basis.
Construction Revenues to rise by 8-10% y-o-y. EBITDA margins to decline due to pressures on
contract pricing, especially in road projects.
Preview: October-December 2011
BFSI
Banking Total income growth to moderate slightly due to slowing credit demand. Net
interest income to grow by around 19% vis-à-vis around 41% in the same quarter
last year due to rising interest expenses. GNPAs for the banking system are
projected to touch 3% by March 2012.
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