Revenue growth seen at 6-7% in Q2: Crisil

Revenue of domestic firms, excluding financial services and oil companies, is estimated to grow by 6-7 per cent in the second quarter of current financial year with overall EBIDTA margins remaining stable at 17.8 per cent, largely driven by export-oriented sectors, a report said.

"EBITDA growth is estimated to be sluggish at 6-7 per cent in Q2 FY14.

“This growth will be largely skewed by export- oriented sectors such as IT services, pharmaceuticals and textiles, supported by the rupee's weakness during the quarter," said Mukesh Agarwal, President of Crisil Research, which published the report.

He said during July-September period, EBIDTA growth of export-oriented sectors is estimated at 25 per cent whereas the remaining sectors are likely to have grown by only one per cent due to weak volume growth arising from poor consumer sentiment and challenging investment climate.

According to the report, export-oriented sectors like IT services, pharmaceuticals and textiles will, in aggregate, report EBITDA margin expansion of nearly 100 bps, while margin is likely to decline by about 50 bps for other sectors during this

period.

"Margin pressure was the highest in sectors such as capital goods and commercial vehicles, where EBITDA margins are estimated to have fallen by 450-500 bps due to low capacity utilisation and high competition," the report said.

Similarly, sectors like cement, airlines and paper, are expected to report a dip in margins due to high input costs, while steel, coal and sugar are likely to witness a drop in margin due to dip in realisation.

The report also pointed out that interest coverage ratio remained under stress for the companies.

"We believe that debt servicing ability continued to be under pressure in Q2FY14 due to weak EBITDA growth and ballooning debt levels, in a high interest rate environment," Senior Director at CRISIL Research, Prasad Koparkar said.

He pointed out that interest coverage ratio in first quarter of this fiscal was the lowest in last 10 years with over one-third of the sectors had a weak interest coverage ratio of less than 2 times during that period, driven by sectors like construction, housing, ports, hotels and retail.

According to the report, margin improvement will be possible only with pick-up in investments and revival in industrial growth, which seems to be challenging in this fiscal.