India Inc Faces Sluggish Revenue Growth in Q2 Amid Construction Slowdown and Commodity Weakness: CRISIL Report Revenues in agriculture, particularly fertilizers, fell significantly by 20-22 per cent year-on-year (YoY), as raw material prices declined.
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India Inc's revenue growth slowed significantly in the second quarter of the fiscal year, marking the slowest growth in 16 quarters. CRISIL's recent analysis of 435 companies, representing nearly half of India's listed market capitalization, estimates year-on-year revenue growth at a modest 5-7 per cent for the three months ending September. This deceleration was largely driven by stagnant performance in the construction sector, which makes up about 20 per cent of India Inc's revenue, as well as a decline in industrial commodities and subdued expansion in investment-driven sectors.
In contrast to the previous quarter's stronger 8.3 per cent revenue growth, Q2 results reveal a broad-based slowdown across several industries due to sector-specific challenges. Revenue growth in the cement industry declined by 2-3 per cent, influenced by high comparative figures from the same period last year and reduced realizations amidst weak pricing. Government spending, which often drives construction activity, remained subdued after elections, causing a slowdown that was exacerbated by above-average monsoon rains. The dampened construction activity ultimately limited cement volume growth.
Revenues in agriculture, particularly fertilizers, fell significantly by 20-22 per cent year-on-year (YoY), as raw material prices declined. With the agriculture sector accounting for 2 per cent of the sample's total revenue, the drop in raw material prices substantially impacted the segment's performance.
Pushan Sharma, director-research, CRISIL market intelligence and analytics said, "Revenue of industrial commodities, investment and construction-linked sectors—collectively accounting for ~38 per cent of our sample set—grew only 1 per cent, weighing down overall performance. The industrial commodities sector, such as coal, saw a 6-7 per cent revenue decline due to lower coal offtake, coal-based power generation and e-auction premiums. In the investment sector, the power segment (~70 per cent revenue contribution), grew just 1 per cent as above-normal monsoon reduced power demand. Among construction-linked sectors, steel revenue fell 2-3 per cent due to price drop led by cheap Chinese imports."
Petrochemical revenues also saw no growth, partly due to the monsoon's impact on demand and production stability. This trend aligns with broader seasonal fluctuations affecting related sectors during prolonged rains.
Despite challenges in traditional sectors, export-related industries and consumer-focused businesses delivered more positive results. Exports, which contribute around 22 per cent of the revenue in the sample set, grew at a solid 5 per cent. Pharmaceuticals saw an impressive 11 per cent growth in revenue, driven by robust demand from regulated international markets and easing pricing pressures in the United States. The IT services sector, representing 70 per cent of the export revenue segment, experienced more tempered growth at 3-4 per cent, affected by deferred project timelines among banking and financial clients in North America and Europe.
Consumer discretionary products and services, accounting for approximately 36 per cent of total revenue, recorded a robust 15 per cent growth in Q2. Two-wheeler manufacturers benefitted from rising rural demand, achieving 15-16 per cent revenue growth due to increased volumes and price hikes. The textiles sector also performed well, with volume-driven growth underpinned by stable pricing.
In the telecom space, revenue climbed 12-13 per cent as companies raised tariffs across different technologies, introduced premium pricing for 5G services, and saw customers migrate to higher-revenue plans. This trend highlights a resilient demand for communication services and an increasing consumer shift towards premium offerings.
Margins Improve Despite Revenue Slowdown
CRISIL's report also indicates that India Inc's overall profitability improved by 70-90 basis points (bps) YoY in Q2, with an estimated 10 per cent growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) for the 435 companies analyzed.
Elizabeth Master, associate director-research at CRISIL market intelligence and analytics, highlighted margin expansion across key sectors. "Among the top 10 sectors, accounting for approximately 75 per cent of total revenue, eight experienced EBITDA margin growth, led by export-linked sectors like IT services and pharmaceuticals, investment-linked sectors like power, and consumer discretionary sectors such as automotive and telecom services. Steel and cement, however, saw margin contraction due to increased input costs and weak pricing."
Sectoral EBITDA margins showed varied trends. IT Services saw margins expand by 110-130 bps due to improved employee utilization and lower attrition rates. Pharmaceuticals witnessed significant margin growth, with formulation manufacturers experiencing a 320-340 bps expansion driven by top-line growth and lower raw material costs, while bulk drug manufacturers saw a 230-250 bps uplift from export recovery and higher realizations.
Power Generation and Telecom Services also posted margin improvements of 130-150 bps and 120-140 bps, respectively, aided by lower coal costs and reduced licensing fees. However, Steel and Cement sectors faced margin contraction, with steel declining by 40-60 bps due to higher iron ore prices and cement dropping 110-130 bps due to weak pricing despite easing cost pressures.
As India Inc enters the next quarter, strategic cost management and targeted investment in high-growth areas will be crucial in navigating the fluctuating landscape ahead.
