The preview of the first quarter of the current financial year by domestic and foreign broking houses suggests a slowdown in sales and the rate of growth, along with pressure on operating margins across all sectors.
The aggregate performance of some sectors are expected be skewed for some companies, while the results for the first quarter are expected to be in line with expectations. Airline companies are likely to be in the red, while a significant decline in net profit would be seen in the telecom, shipping and cement sectors.
The sectors that would outperform the average net sales growth rate of 26.7 per cent would be oil and gas, entertainment, non ferrous metals, tyres and small and mid-sized steel firms. Shipping, fertilisers, cement, telecom and sugar firms may record single-digit growth in net sales, while power, pharmaceuticals and construction firms expect double-digit growth.
| IN LINE WITH EXPECTATIONS Sector-wise estimates | |||
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% growth estimates (Q1-FY12) | |||
Oil and gas is expected to be the most profitable sector, with a rise of 72 per cent in net profit. The aggregate net profit of the nine oil and gas companies is likely to be around Rs 14,724 crore, accounting for 16 per cent of the net profit of the 478 companies. Among other sectors, metals, private banks, capital goods, mining, sugar and auto ancillaries are expected to report a net profit rise of over 25 per cent each. Oil and gas would single-handedly drive India Inc’s rise in profit through robust profit from Cairn India, which benefited from a rise in oil prices and the ramp-up in production from the Rajasthan block. The company expects to post net profit of Rs 2,630 crore, a rise of 834 per cent year on year. Chennai Petroleum, MRPL and Oil India are also expected to put up a good show, while Reliance Industries is expected to post a rise of 25 per cent in net profit. The net loss of the three oil marketing companies is expected to decline from Rs 14,240 crore to Rs 8,697 crore.
Rising input costs, a higher interest burden and moderating demand is expected to hurt the automobile sector. Aggregate net sales of the nine auto makers are expected to rise 18 per cent, with a net profit of around eight per cent. The commercial vehicles and passenger car segments are expected to post a lackluster performance, with Ashok Leyland and Maruti Suzuki expected to record a decline in net profit. Tata Motors and Mahindra & Mahindra may post single-digit growth in net profit. Bajaj Auto’s rise in profit slowed to 21 per cent, while Hero Honda may see some cheer after four consecutive quarters of fall in profit.
The net profit of public sector banks is likely to decline on account of higher provision for restructured portfolio and non performing assets, in line with the Reserve Bank of India’s guidelines. Public sector banks would also be hit by treasury losses and higher slippages due to migration to a system based non-performing loans. State Bank of India may post a significant decline in net profit, around 40 per cent, on account of Rs 1,500 crore worth of provisioning for sub-standard and doubtful assets and restructured loans. Private banks on the other hand are expected to see a 30 per cent rise in net profit, as ICICI Bank, HDFC Bank, YES Bank, along with others, are likely to report a rise of more than 30 per cent in net profit.
Capital goods companies are expected to record a moderate performance this quarter, with a rise of more than 20 per cent in net sales and net profit. Operating profit margins are expected to rise by around 40 basis points, thanks to multinational power equipment companies. The effect of a drop in the prices of metals like copper in the last three months should provide some respite to the margins. Larsen & Toubro may report single-digit growth in net profit on account of 100-basis points fall in operating margins. BHEL, Siemens, ABB, Areva TD and KEC International are likely to see 20-30 per cent rise in net profit.
Slower-than-expected execution of infrastructure projects, a slowdown in the real estate market and the onset of the monsoon affected cement off-take in the first quarter. The net sales of the nine cement companies are likely to increase by around eight per cent, while net profit may decline by 20 per cent. Operating margins are expected to decline by 300 basis points. ACC and India Cement may post double-digit rise in net sales, while Madras Cement and Shree Cement are likely to grow by around six-seven per cent. Due to a significant decline in operating margins, the net profit of all cement companies, expect India Cement, is likely to decline by over 15 per cent.
Fast moving consumer goods (FMCG) companies are likely to post a rise of more than 20 per cent in net sales in the June quarter, riding on a good show by Dabur India, Godrej Consumer, Marico and Nestle. Colgate, Hindustan Unilever and ITC may post a 15 per cent rise in net sales. The margins for most FMCG firms are expected to be steady. The average price of raw materials for most FMCG companies was significantly higher on a year-on-year basis. Hence, net profit is likely to move at a slower pace than sales.
Pharma companies are expected show flat net profits, on last year’s high base. Ranbaxy and Sun Pharma are expected show a decline in net profit, while Dr Reddy’s is expected to post a 30 per cent rise in net profit. Cipla and Lupin may see single-digit growth in net profit on the back of a rise of more than 15 per cent in net sales.
Telecom companies are expected to report a decline in profits, with Idea Cellular and Reliance Communication expected to show a substantial decline in net profit.
