Corporate Revenue to Grow at 6% in FY22, as Second Wave Takes Toll: Ind-Ra

With the second wave of the pandemic disrupting supply chains for most industries, India Ratings has projected an overall 6 per cent median revenue growth for corporates this fiscal over FY20, in a report released on Monday.

However, this will be a high 21.2 per cent over FY21, when half the year was lost in lockdowns. The forecast is more than its own earlier assumption of 4.4 per cent. 

The supply-side disruption has most affected the service-oriented sector, the report said, adding this has pushed back their recovery beyond the current fiscal.

While FY22 is likely to be better than FY20 for most sectors, due to improvement in revenue benefitting largely from elevated prices and pent-up demand resulting in higher volume growth, volatile commodity prices, along with interest rate reversals and fall in the rupee are likely to cap profitability, the report also said.

“Given these, we expect an overall median revenue growth of 6 per cent for corporates in FY22 over FY20 and 21.2 per cent over FY21,” India Ratings said, adding this is an increase from its earlier estimate of a median growth of 4.4 per cent.

The gains in FY22 will primarily come as a result of some level of consolidation, resulting in bipolarisation, meaning larger companies growing faster than smaller ones, it said. Moreover, excess cash used for deleveraging across sectors will result in higher operating leverage supporting overall credit profile of corporates, the agency noted.

But sectors like pharma, chemicals, cement and steel may witness some capex, on account of higher liquidity cushion with them, it also added.

Lower revenue growth is likely to test the credit profile in FY23 due to moderation in consumption and investment demand outlook, smoothening out of supply chain issues and consequent possible moderation in prices, it said.

Noting that discretionary bucket is the worst hit, the report says within the essential bucket, telecom is likely to benefit from consolidation, while improvement in fertilisers is likely to be driven by expected subsidies, thereby reducing working capital needs.

Within the non-discretionary bucket, logistics and ports are likely to grow on account of expectation of strong GDP growth, while the oil and gas sector is likely to contract due to higher commodity prices, and IT and paper sectors are likely to witness an improvement on the back of higher demand, the report also said.

Industrials, goods and services, and cyclical sectors like steel, logistics, cement, construction and commercial realty, are likely to be marginally better off, and may see a recovery from FY20 levels in the first half.

Within these, iron and steel, non-ferrous metals, cement and engineering, procurement and construction are likely to do better, benefitting from higher prices and pick-up in volume.

Sectors linked to consumer discretionary spends and exports are likely to do marginally better. Within these, airlines, residential realty and hotels will be the most hit, and may not recover until the second half, concludes the report.