India Inc may see 10% rise in profits
India Inc is expected to post a 10% rise year-on-year in aggregate net profits during the September quarter, according to analysts’ estimate. The headline numbers might appear muted due to the steep decline in profits expected for the oil marketing companies (OMC) in Q2.
Relatively improved performance is expected from automobile manufacturers, IT services players, drug majors and retailers. On the other hand, makers of consumer staples, capital goods and banks will probably report muted numbers.
The environment for discretionary spends has remained weak as reflected in the lacklustre sales at the start of the festive season. Premium products, however, continue to see fairly good demand across sectors such as real estate and cars. Price increases by manufacturers of consumer staples would have lifted value-growth for most players. However, volumes are understood to have been dull and channel inventory correction, at some companies would hurt revenues. Sales growth for consumer durables makers is expected to have moderated after a strong summer.
Net profits for the Nifty50 set of companies estimated to rise 3.7% year-on-year and 2.5% quarter-on-quarter, according to Kotak Institutional Equities (KIE). For the BSE 30, net profits are expected to go up by 5.3% y-o-y and 2.7% q-o-q. “Excluding oil, gas & consumable fuels sectors, the net income of the KIE universe should grow 11% y-o-y,” analysts wrote on Monday. Ahead of the Q2 earnings season, KIE estimates the EPS (earnings per share) for the Nifty at Rs 1,063 for FY25 and at Rs 1,234 for FY26.
Volumes at automakers were reasonably good in the September quarter except for manufacturers of commercial vehicles (CV). Although discounts were bigger for both cars and CVs, companies benefitted from benign raw material costs.
Moreover, the average selling prices were higher and the product mix too was richer. As such the expansion in both revenues and margins should have been fairly decent.
Business at banks is seen to have slowed in the September quarter with lenders attempting to bring down their credit-deposit ratios at the time when deposits growth continued to lag compared to loans. Moreover, margins too are understood to have shrunk sequentially with deposits being re-priced. Slow spends on capex and an unfavourable base are expected to leave volumes subdued for cement manufacturers. Analysts noted cement prices too were muted with a drop in sequential realisations.
While performances from the IT space could be a bit of a mixed bag, this would be driven by bigger spends in select segments of the BFSI vertical and a ramp-up of deals won earlier. Players with a higher exposure to the retail vertical, analysts said, might post lower growth rates. The depreciation of the rupee against the dollar and the pound would help push up margins sequentially.
With realisations trending down in the September quarter, steel producers are expected to see a decline in operating margins even though input costs – coking coal and iron ore – were lower. Companies, analysts believe, have not been able to push through big volumes during the quarter. Pharmaceutical companies are expected to have fared well led by continuing stability in the prices of US generics and good sales momentum in other markets.