Mumbai: India’s top 50 listed corporates are expected to report double-digit year-on-year growth in aggregate net profit for the third consecutive three-month period, ETIG estimates for the December quarter showed, although muted performance of technology and consumer-goods companies could decelerate the pace of expansion.
Net profit in the December 2023 quarter for the Nifty 50 constituents is expected to climb 15%, compared with 7.6% growth in the year-ago period. To be sure, the year-on-year profit growth was above 25% in each of the two previous quarters, reflecting the base effect.
Aggregate revenue is expected to climb 8.5%, compared with the growth of 6.8% and 18.4% in the previous and year-ago quarters, respectively. Automobiles, banking, financial services and insurance (BFSI), cement, capital goods, and pharma firms are expected to undergird growth.
Metals & Energy Firms likely to Fare Better
“We predict earnings for the companies we track to jump by around 20% year-on-year. The earnings growth is projected to be driven once again by domestic cyclicals, such as BFSI and automobiles, and oil and gas, led by a surge in marketing margins,” said Gautam Duggad, institutional research head, Motilal Oswal Financial Services. Deepak Jasani, retail research head, HDFC Securities, predicts a wide growth divergence across sectors due to varying rates of expansion in the base quarter of December 2022.
“Weak rural demand had impacted sales in the base quarter while urban demand was robust. The situation has only slightly improved since then,” said Jasani, adding that metal and energy companies may do well in the latest December quarter since they had performed poorly in the base quarter. The aggregate operating margin of Nifty 50 companies may expand 160 basis points year-on-year and 70 basis points quarter-on-quarter to 20.9%. One basis point is a hundredth of a percentage point. “Of the 17 major sectors under our coverage, 11 sectors are likely to see an expansion in ebitda margin year-on-year in the third quarter,” said Duggad.
Outlook
Trend in interest rates and commodity prices, extent of government spending ahead of the general elections and global economic scenario will be key determinants of future performance.
“We remain constructive on the markets given the healthy underlying corporate earnings growth, peaking of interest rates and robust macros,” said Duggad, highlighting that geopolitical developments, tepid global growth and volatility led by investors pre-empting the outcome of 2024 elections will be near-term challenges.
Duggad expects Nifty’s earnings per share (EPS) to expand 21% and 17% in FY24 and FY25, respectively.
Automobiles
A steady volume growth in the passenger car segment and a sharp rebound in two-wheeler volumes are expected to drive earnings for auto companies, supported by favourable commodity prices. Volumes at India’s largest car maker, Maruti Suzuki, rose 7.6% year-on-year in the December quarter while bike makers Bajaj Auto and Hero MotoCorp witnessed double-digit volume growth, led by domestic demand. Higher operating leverage and an improving product mix should support margins.
Banking
A sustained growth in credit offtake augurs well for lenders. According to Jasani, banks and finance companies reported a median sequential growth of 4% and 7-8% in advances, respectively, during the quarter. However, net interest margins may remain under pressure due to rising deposit rates.
Capital Goods
Strong execution is expected to drive earnings growth of capital goods; however, order inflow is likely to moderate toward the end of the quarter. Revenue growth could be in the range of 11-15% for the leading capital goods companies and core margins could see a 50-100 basis point improvement on a sequential basis.
Cement
In the December 2023 quarter, cement firms are likely to benefit from an increase in cement prices and cheaper fuel prices. The latter fell 8-10% while average cement prices rose 3.3% to Rs 367 per 50 kg bag year-on-year during the quarter. Cement demand is expected to climb 5-6% in the quarter. UltraTech Cement is expected to report 8-9% growth in revenue and net profit year-on-year in the quarter.
FMCG
Fast-moving consumer goods (FMCG) companies are expected to post a low single-digit revenue growth due to subdued consumer demand. The festive season and the winter onset did little to revive consumer sentiment, especially in rural India. Companies may maintain margins due to lower expenses.
IT
A weak demand in key markets – the US and Europe – is expected to affect the performance of software exporters. Revenue in dollar terms may either fall sequentially or stay flat for the majority of the top companies. Operating margins may also be under pressure due to lower utilisation rates amid furloughs.
Metals
A muted demand amid the festive season and state elections, and sluggish prices of finished products, are likely to impact the performance of metal companies though a low-base effect in the year-ago quarter may offer some support. Higher prices of raw materials such as coking coal may affect operating profit per tonne.
Pharmaceuticals
Pharma companies are expected to post a strong double-digit growth in revenues following a revival in the US market, sustained demand in the domestic market and a weaker rupee. The US market revenue is expected to improve given the new product launches, focus on complex generics and easing of pricing pressures.
