Q2FY25 corporate earnings split sectors between strong growth and slowdowns

Q2FY25 corporate earnings reveal sharp contrasts across sectors, and some accelerating while others sputtering. Four of the 10 largest sectors — oil & gas, automotive, power, and FMCG — saw year-on-year profit declines, while six sectors posted double-digit earnings growth. Construction and infrastructure led the pack with 34.1% rise, followed by pharmaceuticals, auto ancillaries, metals, BFSI, and IT software. However, growth was uneven, with several sectors, including metals, oil & gas, and automotive, facing slowdown. Despite these challenges, BFSI, construction and infrastructure stood out, driving 58.2% of sectoral earnings in the quarter. KRISHNA KANT & RAM PRASAD SAHU steer through the dynamics 

 

BANKING 

 

 

* Banks were the top performers in the second quarter (Q2) of 2024-25 (FY25), reporting double-digit growth in gross interest income and net profit

 

* The bank’s gross interest income and net profit increased by 13.1 per cent year-on-year (Y-o-Y) and 19.9 per cent, respectively, in Q2, but growth was slower than in the past

 

* Growth in banks was led by the public sector and select private sector banks such as Axis and ICICI

 

* However, banks reported a moderation in net interest margins due to faster growth in interest expenses and a rise in bad loans

 

* Banks’ provisions for bad loans increased by 24.9 per cent Y-o-Y in Q2FY25, growing at the fastest pace in 17 quarters

 

* Brokerages remain cautious on banks due to growth headwinds and rising bad loans 

   

FINANCE & INSURANCE 

 

 

* Non-banking financial companies and insurance companies also reported double-digit growth in revenues but disappointed on the profit front

 

* The combined gross interest or premium income of these companies increased by 14.2 per cent year-on-year (Y-o-Y) in the second quarter (Q2) of 2024-25 (FY25), but their net profit rose only 3.7 per cent Y-o-Y in the quarter

 

* Sector profit growth in Q2FY25 was the slowest in 13 quarters, attributed to higher interest expenses and an increase in provisions for bad loans

 

* These companies’ interest expenses rose 18.9 per cent Y-o-Y in Q2FY25, growing faster than their interest income for the second consecutive quarter

 

* Insurance companies also reported faster growth in claims settlements compared to the rise in their premium income

 

* Provisions for bad loans for many retail non-bank lenders more than doubled in Q2FY25 Y-o-Y, raising doubts about their future earnings trajectory

   

  OIL & GAS 

 

 

* Oil and gas companies were among the biggest laggards in the second quarter (Q2) of 2024-25 (FY25), with a sharp decline in earnings and flat to low-single-digit growth in net sales

 

* The combined net profit of oil and gas companies, including Reliance Industries (RIL), dropped 41.1 per cent Y-o-Y in Q2FY25, while their net sales grew by just 1 per cent Y-o-Y

 

* RIL’s earnings were adversely affected by a poor performance in its oil-to-chemicals and retail business, while its telecommunications division outperformed with double-digit growth in revenue and segment profit

 

* Public sector oil and gas companies such as Oil and Natural Gas Corporation, IndianOil, and Bharat Petroleum were hit by lower oil prices and a decline in refining margins

 

* Gas companies’ earnings were impacted by a decline in operating margins, despite a recovery in volume growth

 

* City gas distribution companies, such as Indraprastha Gas and Mahanagar Gas, also faced challenges from a reduced gas allocation under the administered gas price mechanism

 

* Brokerages remain underweight on the sector after a series of earnings downgrades following Q2FY25 results 

   

METAL & CEMENT 

 

 

* Metal and mining companies benefited from higher margins in the second quarter (Q2) of 2024-25 (FY25) despite poor volume and revenue growth

 

* Metal and mining companies’ net profit increased 18% year-on-year (Y-o-Y) in Q2FY25, while their net sales declined 3.3 per cent Y-o-Y, marking the worst performance in at least four years

 

* Industry operating margins rose nearly 220 basis points Y-o-Y to 18 per cent of revenues in Q2FY25, thanks to gains in other income and slower growth in raw material costs

 

* Q2FY25 was the worst quarter for cement makers in five years, with a 75 per cent Y-o-Y decline in net profit and just 0.4 per cent growth in net sales

 

* Most cement makers reported a Y-o-Y decline in volumes and price realisation, but their raw material costs rose, leading to lower operating margins

 

* Most metal and cement companies saw earnings downgrades after Q2FY25, and brokerages remain underweight on these two sectors

   

  CAPITAL GOODS, INFRASTRUCTURE & POWER 

 

 

* Construction and infrastructure companies outperformed in the second quarter (Q2) of 2024-25 (FY25), benefiting from lower raw material and energy costs and a surge in other income

 

* The combined net profit of these companies rose 34.1 per cent year-on-year (Y-o-Y) in Q2FY25, while net sales increased 10.6 per cent Y-o-Y, slowing from 16.6 per cent growth a year ago

 

* Non-core or other income for these companies rose 137.1 per cent Y-o-Y in Q2FY25, boosting their profits

 

* Capital goods companies also outperformed, with a 28.9 per cent Y-o-Y growth in net profit and a 15.7 per cent Y-o-Y growth in net sales in Q2FY25

 

* Faster growth was attributed to higher execution (of past orders) and a Y-o-Y improvement in operating margins from lower raw materials and energy costs

 

* Construction and capital goods firms saw muted domestic order inflows in the first half of FY25, which, if persistent, could adversely affect their revenue and profit growth

 

* Power companies lagged, reporting a 10.6 per cent Y-o-Y decline in net profit — the worst performance in three years. Their net sales rose just 4 per cent Y-o-Y, the lowest in six quarters 

   

AUTOMOTIVE 

 

 

* Volume growth in the second quarter was largely led by two- and three-wheelers. While tractor sales were marginally higher compared to the year-ago quarter, passenger and commercial vehicle volumes decreased by 2 per cent and 11 per cent, respectively

 

* The increase in discounts, along with higher freight and advertising costs, led to lower operating profit, with margins contracting. Going forward, gains from increased volumes are likely to be offset by higher operational costs

 

* The export market for two-wheelers (2Ws) in Africa and Bangladesh remains weak, while Europe continues to experience demand pressures for passenger vehicles (PVs)

 

* With the PV sector having undergone a base correction this financial year, Motilal Oswal expects a gradual demand revival from 2025-26 onwards. Given this, along with relatively attractive valuations, the brokerage prefers PVs over 2Ws

   

FMCG

 

* The sector posted mid-single-digit revenue growth, as demand conditions were muted due to adverse weather (heavy rainfall and floods) and inflation, which impacted sales in the urban segment

 

* Among consumer majors, outperformers included Marico, Page Industries, and United Breweries, while those that missed estimates were Asian Paints, Colgate-Palmolive, Britannia, Nestlé, and Dabur

 

* While rising inflation impacted gross margins, cost-control efforts helped contain the impact of higher costs and weak operational leverage on operating margins

 

* Profitability is expected to stabilise as companies raise prices in the second half of 2024-25 to counter raw material inflation. While rural markets are expected to maintain their outperformance over urban markets, the impact of higher prices on volumes will be a key monitorable 

   

CONSUMER & RETAIL 

 

 

* The sector had a mixed performance, with jewellery majors reporting strong sales growth driven by a recovery in demand following the reduction in Customs duties

 

* Apparel and retail companies saw slight improvements on a sequential basis, largely due to store additions, though like-for-like growth remained sluggish, barring a few exceptions

 

* Gains in the consumer electrical business were driven by the cable and wire sector. Recovery in rural demand and the festival season is expected to boost the consumer durable segment moving forward

 

* The outlook for the third quarter of 2024-25 (FY25) remains optimistic, with the strong festival and wedding seasons ahead. Companies indicated that demand in October was encouraging, and November so far has been robust

 

* Elara Securities expects revenue growth to remain strong, and margins to improve as operating leverage kicks in during the second half of FY25 

   

IT SOFTWARE 

 

 

* The top players reported robust performance with revenue growth between 0.6 per cent and 3.3 per cent on a constant currency basis

 

* While favourable foreign exchange helped, the top five companies cumulatively added $350 million in organic incremental revenues quarter-on-quarter, closer to their long-term growth trend, according to JM Financial

 

* Midcaps significantly outperformed their larger peers, further widening the valuation gap

 

* Barring Tata Consultancy Services, most companies expanded their margins due to better utilisation, with the rupee depreciation also providing some assistance

 

* While the third quarter may see some impact from furloughs, brokerages believe the cycle is turning, as clients have started reinvesting savings from cost-reduction programmes   

   

PHARMA & HEALTHCARE 

 

 

* Pharmaceutical majors posted double-digit revenue growth, aided by strong growth in limited-competition products and chronic therapies

 

* Listed hospital chains also posted strong results, with revenue and operating profit growing 18-20 per cent year-on-year (Y-o-Y), driven by higher volumes and increased revenues per operating bed

 

* The US market has seen steady growth for the fifth consecutive quarter. Improved segmental mix, increased niche launches, better traction in existing products, and lower price erosion in the base portfolio resulted in healthy Y-o-Y growth in US generics, according to Motilal Oswal

 

* Domestic market growth continues to disappoint. While growth numbers could improve in the second half of the year, Elara Securities does not foresee any major pickup and believes domestic business growth will continue to undershoot investor expectations