Despite moderate growth in revenue, it may register a 2-6 per cent fall in profit.
Earnings of India Inc's 30 biggies, comprising Bombay Stock Exchange's (BSE’s) benchmark index Sensex, are likely to decline by 2-6 per cent, though their revenues may witness a moderate growth of 4-11 per cent in the third quarter ended December 2008, according to estimates made by corporate analysts at top brokerages.
Sales of the Sensex companies jumped by 28.2 per cent in the first quarter and 26.1 per cent in the second, while their profits during these two quarters grew by around 4 per cent. This means these companies would show a marginal decline in their third-quarter performance compared to the first two quarters.
Among Sensex companies, most corporate analysts expect HDFC Bank, Bharti Airtel, State Bank of India (SBI), Bhel and Infosys to show a strong over 25 per cent growth in net profit. However, DLF, Tata Motors, Maruti Suzuki, Grasim, Hindalco, ICICI Bank, Mahindra & Mahindra (M&M) and Ranbaxy could see a decline in net profits. Reliance Industries (RIL), Reliance Communications (RCom) and Wipro are expected to decline to single-digit numbers.
The growth in net sales is expected to come from JP Associates, Reliance Infra, Bharti Airtel, HDFC Bank, Infosys Technologies, SBI, Tata Power and RCom. These firms are likely to show a strong 25 per cent-plus growth. Hindalco, DLF, Maruti Suzuki, M&M, Sterlite Industries and Tata Motors are likely to show decline in sales, while Ranbaxy, ACC, ICICI Bank, Tata Steel and ONGC are expected to post single-digit growth. Among banks, analysts expect HDFC Bank and SBI to put up a good show in the quarter with a net interest income (NII) growth of 30-35 per cent and net profit rise of 35-45 per cent. ICICI Bank is expected to post a single-digit rise in NII, while its net profit could fall by over 19 per cent on account of mark-to-market (MTM) losses.
According to auto sector analysts, net profits of all the three Sensex companies -- M&M, Maruti Suzuki and Tata Motors – may decline by over 50 per cent each on account of a fall in net sales and high price inventory.
Among fast moving consumer goods (FMCG) companies, Hind Unilever is likely to be benefited from product price hikes. ITC could gain from rupee depreciation.
According to cement analysts, Grasim Industries and ACC will be impacted by the decline in volumes and rise in input costs.
Rupee depreciation is positive for IT companies as more than half of their revenue is derived from exports. A rupee depreciation of 1 per cent has a positive impact of 30-40 basis points (bps) on their operating margins. However, as these companies have a significant forex cover, they have to provide for MTM losses.
Sensex heavyweight RIL is set to report a decline in profits due to a fall in petrochemical prices and low refining margins.
According to Motilal Oswal Research analysts, banking and finance, software services, capital goods and telecom are expected to be among the best performers, while earnings of automobiles, oil and gas, real estate and cement firms may come under pressure on account of a decline in sales and lower price realisation. Analysts expect as many as 14 of the 30 Sensex companies to report positive earnings. Among these 14 companies, SBI, Bharti Airtel and Infosys are expected to contribute around 80 per cent to the third-quarter earnings growth.
According to Merrill Lynch analysts, the market is bracing for a poor set of results from India Inc for the third quarter with Sensex firms reporting a moderate drop in operating profits. According to them, only nine out of the 30 Sensex companies are likely to report a decline in profit as earnings are partly clouded by lower other incomes due to forex losses.
Auto, cement and pharma companies are expected to report a drop in profit for the December quarter on falling sales and margin pressure. However, banking, led by SBI and HDFC Bank, FMCG, software and telecom sectors should be the key contributors to the growth in profits and revenue.
Angel Broking expects banking, telecom, IT and FMCG companies to shore up the net profit growth for the Sensex companies. The net sales growth is expected to come from banks and telecom companies.
Oil & Gas sales are expected to decline during the third quarter due to lower prices of crude and the consequent cut in prices of refinery products and petrochemicals. Though the sales of RIL are expected to grow by around 12-15 per cent, all the major oil marketing companies are likely to show a decline of 15-20 per cent.
Auto is expected to show 15-20 per cent decline in sales on the back of lower volumes following a credit crunch. The worst-hit would be Tata Motors, followed by Bajaj Auto. Only Hero Honda is expected to show some growth.
The telecom sector is expected to witness a revenue growth of 20-36 per cent on the back of a strong addition to the wireless subscriber base. Idea Cellular may lead the pack with the highest revenue growth, followed by Bharti Airtel and RCom.
Infrastructure sales continue to grow on the back of a strong order backlog. Jaiprakash Associates, Simplex Infrastructure and Nagarjuna Construction are likely to drive growth. Margin hits are expected to be the highest in real estate (-14.6 per cent), Metals (-11 per cent) and Cement (-7.8 per cent). While the real-estate sector will be impacted by lower volumes and realisations, metals will be adversely impacted by lower prices and higher input costs.
IT and telecom are the two sectors with high growth possibilities. While IT may benefit from the depreciation of the rupee, telecom may gain from the strong revenue growth, leading to higher EBITDA growth.
The banking sector may report a strong operating margin growth.
