No hopes of 'acche din' from September corporate earnings

With the hope of a rate hike by the US Fed fading this year and the RBI slashing repo rate by 50 basis points in its recent policy review, quarterly earnings are likely to take the centerstage and set to drive sentiment on the Dalal Street .

The recent fall in commodity prices overseas has made many experts believe that India Inc may continue to see an expansion in margins, as seen in the June quarter, but topline and bottomline growths are expected to keep worries over high valuations alive.
 
Analysts say India Inc is likely to report another tepid quarter, extending the trend that has now lasted more than two years.

The net sales and profits of listed Indian corporates may fall on the year-on-year basis in Q2FY16, they said, indicating the road ahead may still be wobbly for economic recovery and stock market.
 
Why September quarter FY16 may be tepid

Rating agency Crisil in its latest study said the September quarter earnings will grow barely 1.6 per cent year-on-year (y-o-y), marking the fifth consecutive quarter of single-digit growth, owing to fragile consumption demand (especially in the rural areas), weakness in investment-linked sectors and the meltdown in global commodity prices.
 
The analysis is based on 600 companies (excluding financials and oil & gas), which account for 70 per cent of the market capitalisation of the NSE.
 
While the recent fall in commodity prices may add to the margins of many Nifty companies, the same may take a toll on commodity producers such as oil & gas and metals.
 
Broking firm Prabhudas Lilladher expects net sales for Nifty companies to contract by 5.6 per cent y-o-y, EBITDA to improve by 5.5 per cent and net profits to decline 0.5 per cent y-o-y.
 
"While Cipla, Coal India and Maruti are anticipated to post a good quarter, profits of GAIL, Vedanta and Tata Motors are estimated to contract more than 40 per cent. Our FY16E and FY17E EPS stand at Rs 1,560 and Rs 1,880, respectively," said Edelweiss Securities on blue chip companies in a research report.
 
Exporters too are not immune. They may also face some difficulties, given a challenging global environment and volatility in currency markets.
"We expect EBITDA growth of export sectors to be in negative zone for the second consecutive quarter, first time since the Lehman crisis," said Edelweiss Securities' note.
 
Sectoral watch
 
Below is the sectoral analysis of how various sectors may have performed in the July-September quarter:
 
1) Automobiles
 
Edelweiss Securities believes Eicher Motors (28.2 per cent), Maruti Suzuki  (13.5 per cent) and Ashok Leyland (66 per cent) are likely to report better revenue growth y-o-y, while Tata Motors (9.7 per cent), Mahindra&Mahindra (5.7 per cent), Hero MotoCorp (5 per cent) and Bajaj Auto (2.6 per cent) may report lower revenues.
 
Eicher Motors, M&M, Tata Motors remain Edelweiss' top top picks.
 
2) IT Sector

Second quarters have traditionally been stronger for IT companies and the trend is likely to continue in Q2FY16. TCS is likely to lead the IT pack in terms of revenue growth followed by Infosys, while HCL Tech and Wipro are expected to log lower growth.
 
"We expect TCS and Infosys (4 per cent q-o-q) to lead sequential revenue growth. This is weaker than recent Q2 performances for TCS (on impact from fringe markets of Latin America, Japan and in its insurance platform business) and stronger than recent Q2 performances for Infosys (better growth with large clients). Tech Mahindra could follow next (3.7 per cent q-o-q) driven mainly by growth in its enterprise business (6 per cent) and only a nominal (2 per cent) growth in its telecom business," said Bank of America Merrill Lynch (BofA-ML) in a research note.
 
The global brokerage recommends 'buy' on HCL, Infosys and TCS.
 
3) Metals and mining

Weakness in the domestic steel sector, rising imports and subdued global steel prices are expected to have put pressure on steel companies in the second quarter. However, Coal India's revenues are likely to increase by 12.7 per cent y-o-y, mainly driven by a 10.3 per cent increase in sales volumes, believes SBICAP Securities.
 
CIL remains the top pick of Edelweiss in the sector, while it believes Hindalco (24.9 per cent), HZL (9.5 per cent) and Vedanta (33.1 per cent) will report y-o-y decline in EBITDA, owing to low metal prices and premiums.
 
4) Pharma

Edelweiss anticipates the pharma sector to clock tepid Q2FY16 earnings due to muted acute segment growth in domestic market, no meaningful launch in US and depreciation of emerging markets currencies. The brokerage believes Torrent Pharma (13.7 per cent), Cipla (8.3 per cent) and Cadila (2.8 per cent) are likely to report stronger earnings q-o-q, while Lupin (9.9 per cent), Sun Pharma (4.8 per cent) and Ipca (5.2 per cent) will log lower earnings.
 
The brokerage recommends large caps over midcaps. Sun Pharma and Torrent Pharma are its top picks.
 
5) Consumer goods

Sales growth is likely to remain lower for the FMCG sector except for ITC and Nestle, whereas EBITDA is expected to grow at a fast pace, thanks to slump in commodity prices.
 
"We expect sales growth for our FMCG universe (excluding ITC & Nestle) to be sequentially lower at 7 per cent (vs. 8.5 per cent in 1QF16), whereas EBITDA is likely to grow at a robust pace of 22 per cent, fueled by lower commodity prices," said SBICap research report.
 
6) Banking and Financial Services

"Profitability will remain under pressure in Q2FY16 due to subdued credit demand and higher provisioning against stressed assets. For our coverage universe, we expect credit growth to remain slightly ahead of industry's average growth, led by private sector," said IndiaNivesh Securities.
 
"From our coverage universe, 1) HDFC Bank and Axis Bank are likely to maintain above industry average loan growth (21 per cent y-o-y each) majorly driven by retail advances and 2) Bajaj Finance likely to continue with its robust performance in terms of Assets under Management (AUM) growth with increase of 27 per cent y-o-y followed by Capital First with 22 per cent y-o-y increase in Q2FY16E," added the brokerage.
 
7) Oil and gas
 
Steep fall in oil prices in the September quarter is expected to impact revenue growth of upstream oil companies.
"We expect Q-o-Q earnings to be lower in Q2FY16 due to a) lower Singaore GRM in Q2FY16 compared to Q1FY16 and b) high inventory losses due to decline in crude oil price during Q2FY16," said SBICAP Securities in a research report.
 
8) Consumer goods

Sales growth is likely to remain lower for the FMCG Sector except for ITC and Nestle, whereas EBITDA is expected to grow at a fast pace, thanks to slump in commodity prices.
 
"We expect sales growth for our FMCG universe (excluding ITC & Nestle) to be sequentially lower at 7 per cent (vs. 8.5 per cent in 1QF16), whereas EBITDA is likely to grow at a robust pace of 22 per cent, fueled by lower commodity prices," said SBICap research report.
 
Results this week

While Bajaj Corp and IndusInd Bank have already declared their Q2FY16 numbers, India's second-largest software company Infosys will announce second quarter earnings today, followed by its larger peer TCS on Tuesday. Hindustan Unilever, Network 18, TV 18Broadcast, ZEEL, DB Corp, LIC Housing Finance and MindTree and Reliance Industries are slated to report Q2 earnings on Friday.