Nifty companies likely to see 29% surge in Q4 corporate earnings

Rise in combined net profit likely to be led by banks, oil & gas companies, and Tata Motors

Brokerages expect another quarter of high double-digit growth in the earnings of the country’s top companies that are part of the benchmark Nifty50 index. According to brokerage estimates, the combined net profit of the companies in the index is expected to grow by 29.1 per cent year-on-year (YoY) in the January-March 2022 quarter (Q4FY22) to an all-time high of Rs 1.61 trillion, from around Rs 1.25 trillion a year ago.

Growth in corporate earnings should be led by cyclical sectors — such as banking, finance and insurance (BFSI), and oil & gas — and Tata Motors that is expected to report a big positive swing in its net profit in the fourth quarter. Mining & metals companies are, however, expected to report muted growth in earnings due to the combination of a high base effect and a sharp rise in input cost.

The combined net profit of 20 cyclical companies in the index is expected to grow by 38.8 per cent YoY to Rs 1.01 trillion, from around Rs 73,000 crore a year ago. In comparison, the combined net profit of non-cyclicals companies is expected to grow by 15.5 per cent YoY to around Rs 60,000 crore, from Rs 52,000 crore a year ago.

Similarly, revenue growth is expected to be led by cyclicals, with oil & gas and mining & metals companies expected to report a big jump in their revenue due to a rise in product prices.

The combined net sales of the index companies are expected to grow by 32 per cent YoY to Rs 14.18 trillion in Q4FY22, from Rs 10.76 trillion a year ago. In comparison, the combined net sales of 20 cyclical companies are expected to rise by 39.9 per cent YoY to Rs 9.7 trillion, from Rs 6.93 trillion a year ago. Non-cyclical companies, on the other hand, are expected to report 17 per cent YoY growth in net sales to Rs 4.48 trillion, from Rs 3.83 trillion a year ago.

The IT services sector -- the biggest segment in the non-cyclical space -- is expected to report 13.8 per cent YoY growth in the combined net profit to Rs 23,600 crore in the March quarter. Net sales of top-five IT companies that are part of the Nifty50 is expected to grow by 20 per cent to 1.39 trillion in the fourth quarter.

The analysis is based on earnings estimates for Q4FY22 by brokerages, including YES Securities, Motilal Oswal Financial Services, Kotak Institutional Equity, Elara Capital, Antique Stock Broking, and Emkay Global. Our analysis doesn’t include Apollo Hospitals which replaced Indian Oil Corporation (IOC) in the Nifty50 at the end of the quarter on March 31, 2022.

“We expect corporate earnings to grow by 19 per cent YoY in Q4FY22, which is the lowest since Q1FY21, but comes on a high base of nearly 100 per cent growth in Q4FY21. While the aggregate growth is impressive, it is narrow and driven by three sectors -- BFSI, oil & gas, and IT Services. More than half the incremental growth is steered by BFSI, led by a modest revival in credit growth and improvement in asset quality trends," write analysts at Motilal Oswal Financial Services in their earnings estimates for the fourth quarter.

“Q4FY22 and Q1FY23 are likely to be challenging quarters for corporates as they try to strike a balance between rising input costs and demand. Hike in prices has, so far, been well absorbed, with demand remaining intact. However, things are not rosy on the operating margins front, which is expected to contract sequentially and on a YoY basis,” write analysts at YES Securities in their earnings estimate for the quarter.

The brokerage expects its universe adjusted net profit to grow by 32 per cent YoY in Q4FY22, largely driven by strong performance from banks.

Among individual index companies, Tata Motors is expected to top the charts with a Rs 8000-crore positive swing in its net profit to Rs 404 crore in Q4FY22, from a net loss of Rs 7,582 crore in Q4FY21. This way Tata Motors alone will account for 22 per cent of the incremental growth in index companies’ combined earnings.

It is expected to be followed by ONGC with a 75 per cent YoY jump in net profit to Rs 11,000 crore and Reliance Industries with 26.9 per cent YoY growth in net profit to Rs 17,180 crore in Q4FY22. Other big contributors to the overall earnings growth in the quarter include State Bank of India (up 48.5 per cent YoY) and ICICI Bank (up 52.3 per cent YoY).

Together these five companies shall account for 60 per cent of index companies’ combined earnings growth in the March quarter.

At the other end of the spectrum, nine index companies are expected to report a YoY decline in earnings during the fourth quarter. Bharat Petroleum (BPCL) is expected to be the biggest laggard with a 46.8 per cent YoY decline in net profit, followed by UltraTech Cement (down 20.7 per cent YoY), and Tata Steel (down 6.2 per cent YoY).