Revenue is expected to grow 5.6%, the lowest in nine observed quarters. Net profit could grow by 11% helped by several companies in the banking, finance, pharmaceutical and telecommunication sectors.
“Aggregate profits for companies in our coverage will remain flat, the lowest in eight quarters,” said Gautam Duggad, head of institutional research at Motilal Oswal Financial Services.
Deepak Jasani, head of retail research at HDFC Securities, expects revenue growth to be in the mid to high single digits, affected by low volume growth and inadequate realization growth. “Net share could grow in single digits helped by cost efficiencies,” he said.
The operating margin for the good 50 companies is expected to increase by 60 basis points year-on-year to 20.5% given relatively low input prices. One basis point is 0.01 percentage point.
In the coming quarters, weak demand and rising geopolitical tensions will be key concerns. According to Duggad, the ongoing festive season, better-than-expected monsoon and consequent rural consumption provide a short-term catalyst for economic activity. “Valuations have not been corrected materially so far. Tailwinds from the low cost of raw materials will come to the end. Businesses must now target top-line growth to maintain margins and grow the bottom line,” he said.
AgencySectoral Outlook
Car: Growth in sales volume will indicate a shift in the car segment for the September quarter. Two-wheeler volumes are expected to grow in double digits, while passenger vehicles are expected to grow. On the other hand, commercial vehicles may show a decline in volume. Maruti Suzuki India may report weakness in operating margins on lower volumes. Tata Motors is expected to report weak numbers due to weakness domestically and at its British subsidiary Jaguar Land Rover.
Banking and Finance: Banks reported a narrowing gap in the loan-to-deposit ratio during the quarter amid slow credit growth and pick-up in deposit growth; the latter is likely to keep the cost of funds elevated amid intense competition to attract deposits. That can keep net interest margins under pressure while asset quality tends to remain stable.
Capital Goods: In the absence of some countries that have to hold elections, the momentum to carry out activities in the power, realty and data center segments remained intact during the September quarter. Operating margins are likely to increase with light input costs.
cement: The all-India average cement price fell 7% year-on-year to â‚ą331 per 50 kg bag in the September quarter, while cement sales volume remained flat following seasonal weakness due to winter. The big cement maker is expected to report a 3-4% year-on-year decline in revenue and a double-digit decline in net profit amid pressure on profitability per tonne.
FMCG: FMCG companies are expected to grow due to heavy rains, sustained inflation and weak consumer sentiment during the quarter. Rural consumption is expected to increase marginally even as brisk trade drives urban consumption. The company is expected to maintain margins even as it cuts costs by rationalizing ad spending.
IT: After the slack in the previous quarters, the top IT companies are expected to show a 1.5-3% sequential improvement in dollar-denominated revenue for the September quarter. Operating margins may show marginal improvement due to the absence of increases in wages and visa fees.
Metals and Mining: Steel companies may be under pressure due to weak global prices and seasonal weakness due to monsoon. UK subsidiary losses are expected to impact Tata Steel. For Coal India, shipments were weak during the quarter, which will weigh on sales and profits.
Oil and Gas: Benchmark gross refining margin (GRM) remained flat in the quarter while marketing margins for oil marketing companies improved. Upstream companies’ sales volumes may indicate weakness. Reliance Industries’ performance will be supported by Jio amid weakness in refining and retail.
Pharmacy: Pharmaceutical companies are expected to witness strong growth aided by an uptick in their underlying business and new product launches. Growth in the US market is expected to outpace that in the domestic market. A weak rupee bodes well for export-oriented sectors.
power: Strong power demand during the quarter will support the load factor of power generating companies. This, along with capacity expansion, should result in revenue and profit growth for the quarter.
