Top companies to report 6.3% growth in earnings despite 18% growth in sales
The 50 Nifty companies are likely to report a healthy sales growth of 18 per cent year-on-year, with banks driving and energy and auto companies dragging the overall performance in the September quarter.
According to Elara Securities estimates, the bottom-line growth of the Nifty companies would be muted at 6.3 per cent YoY, primarily on expected contraction in auto, energy and telecom sectors. This, despite banks posting a healthy earnings expansion of 69 per cent.
Excluding commodity, profit after tax could see 13.8 per cent growth YoY for companies constituting the Nifty-50 Index. Margin is expected to be healthy, with an Ebitda margin (ex-financials) of 15.6 per cent YoY and PAT margin of 11.5 per cent YoY for the companies in the September-December 2018 quarter, says the Elara preview of Q3 results.
“Dissecting Nifty EPS across quarters we find that a steep 55 per cent YoY growth is warranted in Q4FY19 to achieve our target FY19 EPS of 536, increasing the risk of earnings downgrades. However, on the positive side, most earnings expansion is predicated on earnings recovery in banks and on gross refining margin (GRM) expansion in energy companies (with one-off inventory losses behind us), which looks achievable,” says the report.
It says the impact of declining crude prices would be felt the most in the energy space due to inventory losses, with energy PAT likely down 23.8 per cent YoY. Non-banking finance companies (NBFCs) are expected to bear the brunt of tightening liquidity--PAT down 18.6 per cent YoY--whereas banks would benefit, up 69 per cent YoY, due to improving credit-deposit ratios and rising pricing power, given the stress in the NBFC space.
Softening coal, petcoke and diesel prices coupled with operating leverage benefits would benefit cement--PAT up 39.1 per cent YoY-- while a sharp ramp-up in execution is likely to boost infrastructure, with a 20.4 per cent rise in PAT. Healthcare profit would be up 9.5 per cent, benefitting from seasonal strength of Q3 (flu season) while a strong business outlook and receding benefits of rupee depreciation are likely to reflect in IT--up 3.5 per cent YoY.
Auto would face a challenging quarter, PAT down 27.9 per cent YoY, on lacklustre festival sales and elevated cost of ownership.
The report says State Bank of India is the positive outlier on earnings whereas Indian Oil Corporation is the negative outlier. At the stock level, SBI is expected to post earnings growth (on a free float weighted basis) of 131.6 per cent YoY, aided by bad loan recoveries and credit expansion moving it from loss to profit. HDFC Bank could see 34.4 per cent PAT growth YoY, driven by expanding retail credit growth.
Indian Oil profit could drop by 71.7 per cent YoY and HPCL’s by 32.4 per cent.The two are expected to post the most earnings contraction due to GRM compression.
HDFC is likely to contract by 28.6 per cent YoY due to tightening liquidity, estimates the brokerage.