The performance of 620 listed companies revealed expectedly positive revenue trends, with a 17.2% year-on-year (YoY) growth in the third quarter of FY23, according to the latest report by rating agency ICRA. However, sequentially the revenue growth was subdued at 1.4% due to inflationary headwinds weighing on consumer sentiments and an uneven sectoral trend.
According to the rating agency, almost all sectors reported revenue growth in year-on-year (YoY) terms in Q3 FY2023, with hotels, oil and gas, auto, airlines, and power leading the way, which is likely to bolster the GDP growth in that quarter, according to the rating agency. Sectors such as airlines, hotels, gems & jewelry, capital goods, and fertilisers reported revenue growth on a sequential basis due to successive price hikes and strong demand supported by festive period sales. Simultaneously, other sectors like chemicals, consumer durables, logistics, textiles, and power witnessed a sequential decline in revenues during the quarter due to factors such as stagnant demand and a decline in realisation levels, following the reduction in input costs, as per the report.
In Q3 of FY23, India Inc reported expansion by 180 basis points (bps) in operating profit margins on a sequential basis, supported by price hikes, and simultaneously easing in commodity prices. However, while price hikes and sequential input cost reductions can boost margins in the near term, geopolitical tensions, recessionary concerns, and forex volatility continue to pose risks.
"The YoY growth in revenues during Q3 FY2023 was primarily driven by increased realization levels on account of input cost inflation, along with moderate volume growth aided by the revival in demand across sectors. ICRA’s analysis shows that the operating profit margins (OPM) of India Inc. contracted by 237 bps on a YoY basis in Q3 FY2023 due to inflation in input costs arising from an increase in commodity prices, as well as a spike in energy costs, which could not be entirely passed on to the customers. The OPM of India Inc., however, expanded by 180 bps sequentially to 16.3% during the quarter, aided by a softening in the prices of many commodities on a sequential basis, and general price hikes are undertaken by the entities," Sruthi Thomas, assistant vice president & sector head, ICRA says.
"The sequential margin expansion was most visible in select sectors such as aviation, hotels, cement, and power. While margin pressures are likely to ease further in the coming quarters given the further softening of commodity prices, uncertainties remain due to the evolving geo-political situation. Hence, despite some softening and stabilization of commodity prices over recent months, India Inc.’s ability to improve earnings will be dependent on headwinds such as energy cost inflation, evolving recessionary trends in the developed markets, and the impact of fluctuations in foreign exchange on both imports as well as export-oriented sectors," she adds.
The rating agency expects credit metrics to show further sequential improvement going forward, given the recent trends in softening of commodity prices, general price hikes taken by companies, and reduction in energy cost. "However, the impact of the ongoing geo-political developments and the possible recessionary situation in parts of the global economy, as well as further monetary policy tightening on the macroeconomic environment remains to be seen," Thomas says.