Consumer demand boosts India Inc’s income

Consumer demand boosts India Inc’s income
07/08/2018 , by , in ALLIED

The Indian corporate sector has registered a broad-based revenue growth of 22 per cent on a Y-o-Y basis during Q1FY18-19 driven by low base and resilient consumer demand.

According to rating agency ICRA, sales growth was stronger in consumer-oriented sectors (automobile original equipment manufacturers, FMCG, consumer durables and airlines) and commodity-linked sectors such as cement, iron, steel and oil & gas. This was supported by low base across most sectors in Q1 FY18 because of GST-related inventory de-stocking.

The two sectors, which have witnessed decent growth, are — pharmaceuticals which grew by 20.8 per cent, supported by strong performance in the domestic markets and IT, which reported a healthy growth of 12.9 per cent on a Y-o-Y basis, supported by strong performance in their digital offerings and partial recovery in the BFSI segment.

“The strong revenue growth has ensured that companies were able to protect their EBITDA margins to a larger extent on both Y-o-Y and Q-o-Q basis, reflecting that they have managed to offset the increase in raw material and fuel price through price hikes, operating leverage and cost reduction,” said Shamsher Dewan, vice-president, corporate sector ratings, ICRA.

In terms of sector specific trends, consumer-oriented sectors like FMCG, consumer durables and automobiles continued to grow their domestic volumes and thereby sales. However, the volume growth in Q1 FY19 has come on a low base as the sales in Q1 FY18 were impacted by GST related inventory destocking. Besides volume expansion, the increase in sales was also supported by price hikes across multiple segments because of increase in raw material costs. The sustained volume growth despite price hikes indicates continued growth momentum in the domestic market. Sectors such as automobiles, consumer goods, paints and FMCG took price hikes in Q1 FY19 to counter the rise in raw material costs. In the automobile sector companies took price hikes to offset the rise in steel prices.

Several consumer-oriented companies have reported strong growth in the rural areas. The rural growth momentum is expected to continue, supported by expectations of normal monsoons, hike in MSP and overall thrust on agri-economy ahead of polls.

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