 "India Inc may see modest revenue, earnings growth recovery in Q3FY25")
After a poor showing in the first two quarters of 2024-25, the corporate sector could report a modest recovery in revenue and earnings growth for the October-December quarter (Q3FY25). The growth rate might, however, still be in single digits and at best track the underlying inflation in the economy, suggest brokerage estimates. This would likely result in further downgrades for the Nifty 50 index forward earnings per share (EPS) for FY25 and FY26 and weigh on Indian equity markets.
According to estimates by various brokerages, the combined net profit of the Nifty 50 companies could grow 7.9 per cent year-on-year — the fastest rate in three quarters and a big improvement from the 1.8 per cent in Q2FY25, but a deceleration from the 15.4 per cent recorded in Q3FY24.
The index companies’ combined net sales (net interest income in case of banks and non-bank lenders) is expected to grow 5.1 per cent Y-o-Y in Q3FY25 — a modest recovery from the 4.5 per cent in Q2FY25, but still lower than the 5.4 per cent in Q3FY24. This would mean a seventh straight quarter of single-digit revenue growth rate, and a third straight quarter of single-digit earnings growth rate, for India's top listed companies.
The analysis is based on the quarterly numbers of 48 of the 50 Nifty companies whose earnings estimates for Q3FY25 are available. The estimates for SBI Life Insurance Co and HDFC Life Insurance were not available. The aggregate numbers for previous quarters include those of HDFC, which merged with HDFC Bank in July 2023. HDFC’s earnings estimates for Q1FY24 were added to the HDFC Bank numbers for that quarter.
The 48 index companies in our sample are likely to report a combined net profit of Rs 1.97 trillion in Q3FY25, up from around Rs 1.83 trillion in Q3FY24 and Rs 1.88 trillion in Q2FY25. Their net sales (net interest income in case of lenders) are expected to grow to around Rs 14.51 trillion in Q3FY25 from Rs 13.81 trillion a year earlier and Rs 15.55 trillion in Q2FY25.
According to brokerage estimates, the earnings recovery in Q3FY25 could be led by State Bank of India (net profit up 42.4 per cent Y-o-Y), Bharti Airtel (up 113.3 per cent), Bharat Petroleum (48.2 per cent), Hindalco Industries (66 per cent) and ICICI Bank (11.4 per cent).
Together, these five might account for nearly 83 per cent of all incremental growth in earnings in the quarter. At the other end of the spectrum, IndusInd Bank, JSW Steel, Tata Steel, Coal India and Tata Motors are expected to be laggards, reporting Y-o-Y earnings declines.
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Banking, finance and insurance (BFSI) companies are again expected to report better earnings and revenue growth than the rest of India Inc. Index companies excluding BFSI could see their combined net profit growing 5.8 per cent Y-o-Y, while their net sales might have grown 4.3 per cent Y-o-Y during the quarter. For perspective, non-BFSI companies' combined earnings had contracted on a Y-o-Y basis in the first two quarters of FY25.
“The overall modest earnings growth is broadly anticipated to be driven by the BFSI sector (8 per cent Y-o-Y), along with capital goods (26 per cent), technology (9 per cent), health care (19 per cent), and real estate (58 per cent). Conversely, earnings growth is likely to be weakened by global cyclicals, such as metals (minus 8% Y-o-Y), oil & gas (minus 4 per cent), and cement (minus 45 per cent),” write analysts at Motilal Oswal Securities in their earnings estimates for Q3FY25.
The brokerage has now cut its FY25E and FY26E Nifty EPS by 0.6 per cent and 1.7 per cent to Rs 1,050 and Rs 1,220, respectively. It expects Nifty EPS to grow by 4 per cent and 16 per cent in FY25 and FY26, respectively.