The fourth quarter results of the corporate sector is expected to be similar to the first three quarters of the year — 150-200-basis-point (bp) fall in margins and single or modest double-digit growth in net profit. The sales growth rate may slip below 20 per cent to 18-19 per cent, for the first time after several quarters of 20-per-cent plus growth. Sales in the first three quarters rose 20 per cent while profitability had been tepid.
This trend, according to analysts at Citigroup, is a reflection of slowing demand, and a combination of easing cost pressures and rising profit focus of India Inc. This trend (profit over growth – almost alien to corporate India over the last decade), according to analysts will need a catalyst – mix of lower rates, higher confidence in government and strong global markets, to reverse.
Sales should continue to moderate while margins should continue their quarter-on-quarter rise after reversing a falling trend in the first half of 2012. Analysts expect only modest earnings revisions post-results, with FY13 earnings growth estimates remaining in the 14-15 per cent level.
| LOOKING BEYOND SALES 2011-12 Q4 estimated growth rate* (in%) | |||
| 334 cos | Best 5 | Rest-329 | |
| Sales | 18.34 | 35.75 | 12.52 |
| OP | 13.07 | 89.04 | 3.38 |
| Net profit | 13.06 | 189.32 | -3.40 |
| * Average based on Q4 estimates by 14 brokerages; OP; operating profit | |||
| Best five growth rate (in%) | |||
| Sales | OP | Net profit | |
| State Bank | 33.43 | 43.74 | 16535.67 |
| HPCL | 32.69 | 114.97 | 251.11 |
| BPCL | 25.98 | 159.28 | 243.17 |
| Indian Oil | 39.95 | 127.67 | 156.54 |
| Tata Motors | 40.52 | 61.42 | 53.73 |
Analysts at Motilal Oswal say the results would reflect the macroeconomic backdrop of persistent high inflation, high interest rates and weak currency. Thus, like in the recent few quarters, aggregate revenue growth would be fairly robust at 19 per cent. However, margins are likely to be down over 200 bps. Further, high interest cost and forex-related losses would drag net profit growth down to single digit.
The growth drivers in the fourth quarter will banks, led by State Bank of India, Tata Motors and the three oil marketing companies - Indian Oil Corporation Ltd, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd. Of the 334 companies studied here, these five companies may post 36 per cent rise in sales, a 350-bps rise in margins and a strong 189 per cent rise in net profit. The rest of the sample may see a modest 13 per cent growth in sales but their profit may slip a marginal three per cent.
Strong profit growth is also expected from Tata Motors, Ranbaxy Labs, Sun Pharma, and also from sectors, such as cement, FMCG, pharmaceuticals and software. Aviation, construction, infrastructure, metals, realty and telecom are likely to underperform in the fourth quarter.
About 33 per cent of the sample studied here will report 20 per cent-plus growth in net sales while 40 per cent of the sample sample will be reporting single-digit growth or even decline in sales this quarter. There will be a high share of one-offs due to a strong rupee compared to the third quarter. Profit is expected to decline for 47 per cent of the companies surveyed, while 28 per cent of companies are expected to post profit growth of above 20 per cent plus.