A preview of the December quarter’s company results by three foreign and three Indian broking houses hints at relatively moderate performance.
Of the 47 companies that are part of the BSE Sensex & S&P-CNX Nifty, the benchmark indices, the expected net profit growth is 22 per cent. Net sales are projected to grow at 16.4 per cent, while operating margins are more or less unchanged from the year-ago level.
The broad picture indicated by an analysis of 263 companies shows a net sales growth rate of 17.6 per cent, while operating margins are expected to go up 80 basis points, to 17 per cent. Net profit growth is likely to be around 20 per cent.
The corporate sector had done extremely well in the second quarter, with profit growth of 35 per cent. With the favourable base effect wearing off and margin pressures creeping in, variance in performance across companies is rising, indicate corporate analysts at CLSA Research.
| WANING BASE EFFECT Sectoral growth rates* | |||
| Sector | Net sales | Opr profit | Net profit |
| Automobiles | 21.61 | 19.93 | 55.75 |
| Capital goods | 21.93 | 14.88 | 12.41 |
| Cement | -2.35 | -27.68 | -33.14 |
| FMCG | 19.89 | 18.10 | 16.00 |
| IT | 19.57 | 13.16 | 14.59 |
| Metals | 12.08 | 9.77 | 20.88 |
| Pharma | 16.90 | 11.89 | 48.06 |
| Power | 28.57 | 21.32 | 3.36 |
| Refineries | 16.33 | 37.25 | 68.18 |
| Telecom | 12.55 | 40.98 | -33.62 |
| * Expected growth rate in Q3 FY11 based on analyst reports | |||
The moderate growth in earnings should be visible in sectors such as metals, oil and gas, and information technologies. Automobiles and pharmaceuticals are expected to do well, but cement and telecom may see a sharp decline in profit. Oil marketing firms may report net loss in the third quarter.
The trend in earnings across companies clearly reflects the move into a more mature phase of the growth cycle, when operating leverage gains wear off. Reliance Industries will see 35 per cent profit growth in profit, while BPCL and HPCL are expected to report net loss during the quarter if the oil subsidy is not received. Maruti Suzuki is expected to report a decline in net profit, while Hero Honda may report a single-digit rise in net profit.
The biggest positive swings will be in Cairn, Tata Motors, Dr Reddy’s Laboratories, Ranbaxy, Tata Steel and ONGC. ACC, Ambuja Cement, SAIL, Cipla, Bharti Airtel and Reliance Communication will see a decline in profit, while Hindustan Lever, GAIL and Wipro are expected to show single-digit growth in net profit. BHEL and Larsen & Toubro may witness a profit growth rate of 15-20 per cent.