As the September quarter earnings season starts, it will be worthwhile to keep a watch on some of the top companies expected to score both strong growth and fall in profits. Estimates suggest companies from the retail space (discretionary spending) will see the sharpest fall in profit, due to concerns over consumer sentiments impacting footfalls and same-store sales. While those from oil and gas, pharma and cement sectors will see a sharp jump in profits.
The laggards
Pantaloon Retail is top on the list, with net profit expected to fall 94 per cent year-on-year for the quarter ended September. Despite 11 per cent growth in operating profits, Pantaloon is expected to see high interest costs, consume almost two-third of its operating profit. Within retail space, Shoppers Stop too is also expected to report a decline in profit to the extent of 82 per cent. This is largely on account of higher overheads on new store openings and extended discount period, along with higher interest outgo.
The next candidate is from the metal space. Tata Steel is expected report a 63 per cent fall in adjusted consolidated profits. The fall can be partly attributed to the decline in the domestic steel prices and negative contribution (at the operating profit level) from other subsidiaries like Tata Steel Europe due to lower steel prices and sales in Europe. For the Europe subsidiary, steel shipments are expected to decline 16 per cent year-on-year. The list also includes telecom company, Reliance Communications, estimated to report a 60 per cent decline in profits. This is largely attributed to the net finance cost, likely to more than double to Rs 531.6 crore in the quarter as against Rs 227.4 crore in the year-ago quarter.
In the automobile space, Maruti Suzuki will be interesting to watch given the problems it has faced at its plants and slowing auto sales. The company is expected to report 8.7 per cent decline in volumes, but higher realisations (16.4 per cent) should help revenues increase four per cent. Despite that, it could report a 51 per cent decline in profit as a result of an expected 160-basis-point decline in operating margins, which is to do with weak demand for petrol cars and consequent discounts, along with the impact of unfavourable currency movement and recent wage rise.
The leaders
On the flip side, there are companies which will surprise on the upside, and notably, the percentage increase in their net profit being far higher than companies expected to report decline in profits. On an average, these top 10 companies (mentioned in the table) are expected to report profit growth of 485 per cent. Here, MRPL is expected to report the strongest rise of 3,365 per cent in profit led by higher throughput and a rise in gross refining margins due to crude inventory gains.
| HOW THEY ARE EXPECTED TO SCORE | |||
| Company | Positive PAT growth (%) | Company | Negative PAT growth (%) |
| MRPL | 3,365 | Pantaloon | -94 |
| Chennai Petroleum | 305 | Shoppers Stop | -82 |
| Cairn India | 271 | Tata Steel | -63 |
| Strides Arcolab | 190 | RCom | -60 |
| ABB | 145 | Maruti Suzuki | -51 |
| Sesa Goa | 139 | Reliance Infra | -48 |
| United Phosph | 120 | Unitech | -47 |
| Cadila | 110 | BGR Energy | -42 |
| ACC | 103 | Tulip Telecom | -37 |
| Oriental Bank | 98 | DLF | -37 |
| Note: The list is based on about top 150 companies that are covered by MOSL Source: Motilal Oswal Securities (MOSL) | |||
Even if MRPL is excluded, the rest of the pack is expected to report a 165 per cent year-on-year growth in profit during the quarter. More importantly, the next two companies in the ranking too are from the oil and gas sector, namely Chennai Petroleum and Cairn India. In the case of Chennai Petroleum, the operational gains are expected to add to the bottom line, considering that the company is expected to turn into profit at the operating level compared to an operating loss of Rs 210.2 crore in the year ago period. A tax write-back last year had helped it report a profit of Rs 73.2 crore.
Cairn India is expected to witness the benefits of higher production at Rajasthan, leading an expected 84 per cent growth in revenues in the quarter. That apart the operational gains and lower interest outgo is expected to boost Cairn India's profit, seen rising a whopping 271 per cent in quarter.
