India Inc's profitability to decline in FY'12: Crisil

NEW DELHI: Rising input costs and high interest rates will pull down India Inc's profits this fiscal, especially in sectors like cement, real estate, textiles and shipping, credit ratings agency Crisil said today.

Given the limited pricing flexibility in most of the sectors, growth will be accompanied by margin pressures as companies will be forced to absorb a part of the rising costs, it said.

"Accordingly, the EBIDTA (Earnings Before Interest, Depreciation, Tax and Amortisation) margins are likely to decline to 19 per cent in 2011-12 from 20 per cent in 2010-11", Prasad Koparkar of Crisil Research said.

While the average EBITDA margins of the 17 sectors (excluding oil & gas and banking) covered in the report are expected to fall by around 1 per cent, sectors such as cement, real estate, textiles and shipping will see a sharper drop in profitability, Crisil said.

It added that upstream oil companies and integrated metal players, having access to captive natural resources, are expected to beat this trend as the buoyant global prices backed by robust demand will allow an improvement in their margins.

Besides, revenue growth in the current fiscal year will be steady at 18 per cent.

Moreover, exports driven sectors like IT and pharma are expected to maintain healthy top line growth driven by demand recovery in the US markets.

However, interest rate sensitive sectors such as auto and realty will see a sharp deceleration in revenues, as high lending rates would push up the amount of capital investment required.

The report, however, said India's capital structure will not be an area of concern in the current year.

"Many companies have had significant equity infusions in the last 1-2 years, which coupled with healthy cash accruals has actually resulted in improved capital structure", Koparkar said.