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After robust performance in the financial year ended on March 31, 2010, all eyes are now on India Inc’s numbers for the June quarter to see if companies have managed to sustain the growth momentum.
There were tough challenges during the quarter such as a higher base in the same quarter of the last financial year, an appreciation in the rupee — which has impacted export-oriented sectors such as IT — a higher subsidy burden and flat margins for the oil and gas sector.
“We are expecting 7-8 per cent top line growth in the April-June quarter. For the bottom line, we are estimating 10-12 per cent growth,” said Nischal Maheshwari, head of research at Mumbai-based brokerage Edelweiss Capital.
For the full year, Edelweiss Capital is estimating India Inc to report 20 per cent growth in bottom line and 15 to 16 per cent rise in top line. In the first quarter of FY10, BSE100 companies posted net profit growth of 21.42 per cent, according to data provider Capitaline. However, top line growth was negative at -12.24 per cent.
Pankaj Pandey, head of research at ICICI Direct, reckons auto, banking, IT and capital goods sectors to report positive numbers in the first quarter of FY11. “The sales numbers of automobile companies for April and May showed they are doing well. The pressure is also receding on the margin front. Pricing power has come back to original equipment manufacturers,” he pointed out.
Angel Broking CMD Dinesh Thakkar said “Auto companies continue to witness stellar volume growth, with a 36 per cent spurt in sales due to continued buoyancy in economic activity and healthy consumer and business sentiments.”
He expects sectors such as infrastructure, capital goods, auto, banking and IT to lead the growth momentum during the quarter.
As far as the IT sector is concerned, volume growth is expected to remain strong at 12 to 20 per cent year-on-year, but a strengthening greenback (particularly its 9 per cent quarter-on-quarter appreciation against the euro) may play spoilsport, said Harit Shah of Karvy Stock Broking. In a note to clients, the brokerage said it saw no major impact on IT firms from the euro zone debt crisis.
However, salary hikes and volatile currency movements are expected to put pressure on margins, resulting in an estimated 142 basis points quarter-on-quarter (QoQ) decline in Ebitda. According to Thakkar, IT companies are seeing accelerated growth since the second quarter of FY10 and by the June quarter, their annualised growth is expected to have improved to 20 per cent.
One key indicator of companies’ performance during the just-ended quarter was the advance tax numbers.
Anita Gandhi, head of institutional business at Arihant Capital Markets, said based on advanced tax numbers, the earnings season is expected to be good. Advance tax collections have gone up by 22 per cent. Earnings are expected to be good for banks and auto companies. But it will be slightly subdued for the cement sector as indicated by the advance tax paid by ACC. Among the blue chips, advance tax numbers of State Bank of India and Reliance Industries were robust. However, the impact of deregulation in the oil & gas sector will be felt only in the next quarter.
The capital goods sector has seen continuous inflow of orders. “We have to look beyond the first quarter for capital goods companies,” said Pandey of ICICI Direct. “Order inflows have just begun to trickle in.”
Project execution in frontline capital goods and infrastructure companies continued to pick up appreciably. Bhel alone is expected to see 20 per cent year-on-year (YoY) growth as other engineering companies report strong order books and execution rates, said Thakkar.
He expects banks to report a strong revival in credit demand, with the growth rate doubling to 19 per cent in seven months. “Asset quality is improving rapidly for private banks, but PSU banks may see a few more subdued quarters due to the bad loans restructured last year,” he pointed out.
ICICI Direct’s Pandey felt net interest margins (NIMs) of banks have stabilised in the April-June quarter. “We expect some profit booking in banking stocks on the back of a rate hike. But, we are positive on the sector,” he said.
In the commodities basket, pricing pressures were the order of the day during the quarter. For instance, the steel sector suffered due to large-scale cheaper imports from China. Thakkar said base metal players also saw erosion in prices in line with falling LME prices as the euro zone crisis precipitated.
Cement companies witnessed substantial decline in prices, especially in the south, where the maximum capacity additions took place. Prices have started softening across regions after touching the previous peak during April 2010 due to moderation in demand growth and incremental supply from new capacities.
According to analysts, the growth figures of the first quarter of last financial year came on the back of a weak Q1 in 2008-09. “From now on, the base will start moving up and that will be the real test of the recovery,” said Anoop Bhaskar, head of equities at UTI Mutual Fund.
Bhaskar said auto, pharmaceutical and construction companies should be able to report better-than-expected results. Brokerage Sharekhan expects the FMCG universe to grow 15.3 per cent on a YoY basis. In the absence of price increases, organic revenue growth for all FMCG companies (except Tata Tea) will be driven largely by volumes,” the brokerage said.
Vinit Bolinjkar, head of research at Ventura Securities, expects all sectors — including pharmaceuticals and real estate — to report strong performance in the just-ended quarter. “Real estate, which has been faring badly, can surprise with better performance in the June quarter,” he said.
(With inputs from Ravi Ranjan Prasad)
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