India Inc to put up better show for Dec quarter

Tags: News

Export-oriented sectors likely to shine, infra firms to show stress

Earnings of Indian companies in the October-December quarter are likely to see a marginal improvement, but the key number to watch out for is margin expansion, if any. Several sectors are expected to show signs of improvement.

The quarter, analysts say, will see better-than-expected results led by IT and other export-oriented businesses. Stress in the infrastructure-related sectors will continue, as economic growth to the decade’s slowest at 4.8 per cent.

The earnings season will kick off with Infosys announcing its Q3 financials on January 10.

According to Crisil, India Inc’s revenues (excluding financial services and oil companies) are likely to increase by a 7-9 per cent year on year during the quarter. However, whereas in earlier quarters growth was seen only in a few sectors, several other sectors will show a gradual improvement in growth from now on. The rise in revenues, though, will not translate into higher profitability. Ebitda (earnings before interest, tax, depreciation and amortisation) margins during the quarter are estimated to remain stable at 17 per cent.

“The big question is whether the margins will continue to show an upside in the last quarter,” said Dhananjay Sinha, institutional research head of Emkay Global Financial Services.

Sensex Ebitda margins increased by 14 basis points in July-September. This excludes banking and oil.

Nifty saw a decline of 50 basis points in Ebitda and BSE100 a decline of 127 basis points. Margins may see further pressure in the third quarter, say analysts.

Net sales in the September quarter saw a marginal rise of 9.97 per cent. PAT grew by 22.38 per cent on a QoQ basis for BSE100 firms, as per Capitaline data. For Sensex, the September quarter saw 12-15 per cent sales growth, driven mainly by export-related sectors.

“There was a significant improvement in companies which had a mix of exports and domestic sales. We need to see if there is an improvement or drop in sales in the just-concluded quarter,” said Sinha.

Sudip Bandyopadhyay, MD & CEO of Destimoney Securities, reckoned corporate India would come out with a decent performance in the third quarter, especially consumer-facing sectors, thanks to festival sales. “Just like the second quarter when leading companies posted better than expected results, we might see a good set of numbers for the December quarter,” said Bandyopadhyay. He did not expect any major negative surprises. The quarter saw festival sales, which will positively impacting overall sales.

“Even cement firms are expected to report better results… Infrastructure is not out of the woods yet but L&T will perform better as 40 per cent of its revenues come from overseas,” he said.

According to Sinha, the banking sector, especially PSU banks, will report a lot of stress. Credit growth came down and profitability will take a hit. “In the auto sector, two-wheeler makers, especially Hero MotoCorp, is expected to show a good performance with volume growth last quarter. Tata Motors, Bharat Forge and Motherson Sumi may also do well,” he said.

Telecom stocks have done well, but the there is stress in the sector. In FMCG, HUL may throw up a downside surprise due to a fall in oral care, hair oil, soaps and detergents sale, according to him.

“As per HUL’s management, discretionary categories remain under pressure against a backdrop of sustained inflationary pressure, while increased competition has taken a toll on some of high-penetrated categories. We expect volume growth in HUL’s domestic consumer business to be 4-5 per cent in the coming quarters.

The increase in prices of key inputs coupled with the depreciation in the rupee will affect the gross profit margin in the second half,” Sharekhan said in a December 24 note.

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