Steel Sector Margins To Shrink In FY20: Crisil

With the Indian economy caught in crosswinds, rating agency CRISIL expects gross domestic product (GDP) to grow 6.9 percent this fiscal, or 20 basis points lower than what the agency had envisaged earlier.

“The revision factors in a triangulation of downside risks: inadequate monsoon, slowing global growth, and sluggish high-frequency data for the first quarter,” CRISIL said in its India Outlook 2019 report.

And that’s bad news for the steel sector which would see its margins contract during the year, the report has predicted.

“In fiscal 2020 revenue is expected to grow much slower, at 7.5-8 percent on-year. This is largely because of a moderation in sales volume in key consumption sectors such as automotive, softening of commodity prices affecting the metals sector, and a lack of fillip to export-linked sectors from the currency,” the report says.

Profit, though, is expected to outpace revenue growth in fiscal 2020, rising 10 percent on-year, compared with 9 percent growth in 2019, riding on improving profitability in consumer discretionary sectors such of airlines and telecom, which saw sharp contractions last year the report predicts.

“Softening metal and coal prices will support margin expansion in these sectors. Margins of the construction and steel sectors, though, are expected to shrink,” the India Outlook report states.

Attributes of slowing revenue growth in FY20

Significant slowdown in construction commodities, as steel prices weaken in FY20 from the peak of 2019

Consumption-linked sectors, especially high-ticket purchases, to moderate in FY20

Export-linked sectors return to real growth led by rupee stabilization.

Cement

Despite a sharp slowdown in sales volume growth, from 12 percent on-year in FY19 to 6-7 percent on-year in FY20, revenue and profit are expected to expand at a healthy pace on improving realisation (5-6 percent) and lower power and fuel cost.

Construction