Corporate profitability — or the earnings before interest, taxes, depreciation and amortisation (Ebitda) margin — likely remained steady in the first quarter sequentially, but fell 200-300 basis points (bps) on-year, Crisil’s analysis of over 300 companies (excluding those in the financial services, and oil and gas sectors) indicates.

That would mark the third consecutive quarter of on-year decline. Ebitda margins of almost half of the 47 sectors tracked by Crisil Research are estimated to have contracted on-year during the quarter.

Absolute Ebitda profit, too, shrank for the first time in five quarters as companies were unable to fully pass on the increase in input costs, especially of key metals and energy.

Says Hetal Gandhi, Director, Crisil Research, “The current fiscal could see Ebitda margin contract further, to reach 19-21% largely due to elevated energy and metal prices. The Ukraine-Russia conflict has sent crude and natural gas prices soaring, and poses uncertainty for trade in metals such as steel, which will lead to elevated prices of commodities and hence continued pressure on profitability.”

In the first quarter, Ebitda margin in construction-linked sectors are likely to have fallen the most, at 990+ bps on-year, followed by the investment-linked segment, which saw an on-year margin erosion of over 260 bps.

Among construction-linked sectors, steel products saw a sharp margin contraction of around 1,500 bps on-year as input cost escalation — both coking coal and iron ore prices have risen — was higher than the rise in steel prices. Prices of flat steel were on average up to 10% higher on-year in the first quarter, and those of aluminium by around 30%. The price of crude (Indian basket) surged nearly 50-60%, while those of spot gas and coking coal rocketed to almost 2.3x and 3.3x, respectively, on-year. Even the petrochemicals sector saw a steep contraction in margins, to the extent of 1,500 bps on-year.

In contrast, the margins of consumer discretionary services and products, as well as consumer staples services, saw an expansion of 200-300 bps on-year. Margin expansion in consumer discretionary services was largely driven by airlines services (which rebounded to a healthy level after the operating loss of last fiscal), followed by telecom services (due to tariff hikes), and the media & entertainment segment. Margins of consumer staples services are estimated to have been driven by a rise in profitability in the sugar sector.

On its part, corporate revenue is estimated to have logged a healthy growth of ~30% on-year in the first quarter, largely supported by price hikes and moderately rising volumes. Volume gains were largely attributed to a pick-up in economic activity. On a sequential basis, though, corporate revenue likely de-grew 3-5% on-quarter.

Says Sehul Bhatt, Associate Director, Crisil Research, “Of the total on-year incremental revenue in the first quarter of the current fiscal, nearly 54% was contributed by just two segments, construction-linked and consumer discretionary products. Majority of this rise was supported by steel and cement sectors. Of the total on-year incremental absolute Ebitda profit in the quarter, consumer discretionary products and consumer discretionary services accounted for around than 60%, largely supported by airlines services, media & entertainment etc.”

For the quarter, automobile revenue is estimated to have risen a sharp 64-67% on-year due to a lower base of last fiscal, an estimated 22-27% increase in realisations, and a 30-35% increase in volume.

Cement revenue is estimated to have grown 20-22% on-year, on a very low base of last fiscal, as the year-ago quarter was hit by the second wave of the pandemic. Volume is also expected to have risen on a low base, though on a sequential basis, both volume and revenue are estimated to have dwindled.

On their part, metal sectors such as steel and aluminium are estimated to have witnessed strong double-digit revenue growth, mostly driven by price hikes to pass on the rise in raw material costs.

On the services side, revenue of IT services firms is estimated to have increased around 18% on-year, aided by continued demand for digital services and cloud services.

Says Jignesh Surti, Manager, Crisil Research, “In absolute terms, of the 47 sectors analysed in the first quarter of this fiscal, more than 90% are estimated to have seen revenue exceed the pre-pandemic level (first quarter of fiscal 2019). Overall, aggregate revenue recovered up to 146%, while revenue of key sectors linked to construction and investment recovered to the extent of 150-200% and more. Agri-linked sectors, too, have fully recovered and reached more than 120%. On the other hand, sectors such as roads and highways, gems and jewellery exports, and distilleries and breweries failed to recover fully or barely recovered during the quarter.”

In the current fiscal, revenue is expected to grow 10-14% on-year following continued recovery in volume and higher realisations. Consumer discretionary segments (such as airline services and hotels) will steer performance amid strong demand recovery.