India Inc headed for yet another sluggish growth in profit, led by three oil marketing companies (OMCs) that are expected to report net loss of Rs 6,790 crore. The 30 Sensex companies are expected to do marginally better -- with a net profit growth of around 8 per cent.
The net sales are expected to grow by 19 per cent (ex-OMCs) compared to over 21 per cent in the second quarter -- way below 25 per cent plus recorded in the first quarter.
Rising costs of raw materials and high cost of borrowing and limited pricing power at the margin would likely translate into sharp margin contraction across the board. Overall, operating margins for (formerly oil and finance) manufacturing and services companies is expected to decline by over 220 basis points. For Sensex companies, margins decline will be around 170 bps.
The profit growth for ex-OMC and Sensex may be just about a per cent. The pressure on margins is expected to over 200 basis points for ex-OMC and banks and finance. Drawdown in revenue trajectory also continues with top line growth moderating around 19 per cent, ex-OMC.
Highly disturbing is the breadth of negative earnings with the 40 per cent companies of the 290 studied here are expected to post decline in net profit in the third quarter. Apart from this, as many as 25 companies are expected to post net loss aggregating to Rs 9,020 crore. Only 29 companies are expected post 50 per cent plus growth in net profit.
Automobiles (2-wheeler), oil and gas, cement, IT, pharmaceuticals and FMCG, none of the major sectors are expected to post any significant jump (15 per cent) plus growth in net profit. Sectors which are expected to post weak earnings growth include automobiles (4-wheeler), cap goods, metals, telecom and autos.
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Earnings for the Sensex universe are expected to come from consolidated Hindalco, Coal India, Infosys, Hero MotoCorp, Bajaj Auto, Sun Pharma, Cipla and HDFC. Reliance Industries, Tata Steel, JSPL, Tata Motors and Maruti Suzuki while it is expected to post decline in net profit.
According to Edelweiss Research, the fault lines are clearly visible in the backdrop of a perceptible slowdown in macro-environment. The rupee has also depreciated 8 per cent against the dollar in third quarter and potentially could suppress reported profit growth. New AS 11 amendments, however, may provide some respite.
Sectors that have seen a progressive decline in revenue growth include engineering and capital goods where shrinking new order intake, especially from the power sector, has hampered revenue growth at 14 per cent compared to 22 per cent a year.
Pharma sector is expected to post a stellar 20 per cent sales growth, riding strong surge in domestic market, favourable currency movement and niche launches in the US.