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Informist, Wednesday, Oct. 9, 2024

 

By Apoorva Choubey

 

MUMBAI – The September quarter performance of India's largest blue-chip companies will reflect the widespread slowdown in demand seen across the globe, with some consumer-facing domestic sectors also beginning to show the strain. The top-line growth of companies in the Nifty 50 index is expected to be the slowest in at least five quarters while their profit growth is seen to be muted, in single digits, according to analysts.

 

The cumulative net sales of 48 companies in the Nifty 50 index are expected to have risen 4% on year during Jul-Sept, according to an Informist Poll of 19 brokerages. Bajaj Finserv Ltd. and Adani Enterprises Ltd. have not been considered in this poll as there weren't enough analyst estimates available for these stocks. The 4% growth in net sales these 48 companies are expected to report is sharply lower than the growth of nearly 7% in the preceding quarter and over 9% in the previous full year.

 

Slowing growth in revenues has been a problem for corporate India for a couple of quarters now, but the weakness is now spilling over to profit growth too, as predicted by many market watchers. Companies no longer have the benefit of lower raw material prices, which had helped them clock double-digit growth in net profit over the past few quarters.

 

Thus, the cumulative net profit of 48 companies in the Nifty 50 index is seen growing 8% on year for the September quarter, the estimates showed. This would be the second quarter of sub-10% profit growth for Nifty 50 companies in almost four years, after their net profit rose a meagre 4% in Apr-Jun.

 

The last time the net profit growth was lower than 10% for Nifty 50 companies was for the quarter ended Jun. 30, 2020, during the COVID-19 pandemic, according to analysts. Since the September quarter of 2020, the net profit growth for Nifty 50 companies has been above 10% for 15 straight quarters. For FY24, Nifty 50 companies had posted a 16% jump in net profit though top-line growth had slowed significantly.

 

"Corporate earnings, after four consecutive years of healthy double-digit growth, are moderating due to pressures from commodities and fading tailwinds from BFSI (banking, financial services, and insurance) asset quality improvements," brokerage Motilal Oswal Financial Services said in a preview report Monday. The recent prints from high-frequency indicators, such as power demand, Purchasing Managers' Index data, goods and services tax collections, and automobile sales numbers, also indicate a softening in domestic demand, the brokerage said. For the firm's coverage universe of 277 companies, the September quarter earnings are likely to be flat from a year ago, making it the worst performance in eight quarters.

 

What's more, volumes, rather than prices, are causing the slowdown in sales growth, which is unlike the trend that played out in the previous financial year, Nuvama Institutional Equities warned in a preview report Monday. By sectors, it will be the domestic-oriented ones such as consumer services that will weigh on the overall performance in Jul-Sept, compared to the weak growth delivered by chemicals, information technology, and other export-linked sectors last year, it said.

 

The weakness in earnings of Nifty 50 companies is starker when compared quarter-on-quarter. The cumulative Jul-Sept sales of these 48 Nifty 50 companies are seen rising 1% sequentially, while the bottom line is seen 1% lower from Apr-Jun. 

 

DOWNGRADE RISK

The slowdown in global economic growth, conflict escalation in West Asia, and rising crude oil prices could worsen the situation for corporate India, analysts fear. "What's more worrisome is (that) the earnings slowdown is now being led by demand and not external/liquidity shocks," brokerage Nuvama Equities said. "Reversing demand would thus need a notable policy response, which is not in the offing for now."

 

If the brokerage's forecast of 2% growth in Nifty 50 companies' cumulative earnings comes true, then the earnings per share growth for Apr-Sept would be just 3%. This growth rate in earnings per share would be markedly slower than the 13% growth projected for the current financial year and may, therefore, prompt cuts in earnings estimates, Nuvama Equities said. The earnings per share of Nifty 50 companies is currently projected to rise to INR 1,084 in FY25 from INR 957 last year, the brokerage said.

 

Brokerage Elara Securities also fears downgrades to earnings estimates due to worsening global factors, and sees cement, energy, and metal companies vulnerable to such cuts in projections. Some analysts are also worried that consumer-driven companies may sound cautious due to slowing volume growth, but others hope that the current festival season, better-than-expected rains, and a consequent pick-up in rural consumption will provide a fillip to demand. 

 

Thus, investors will monitor the comments from senior managements of companies to gauge the likely impact of ongoing global developments on businesses, especially with stock valuations at the levels they are and foreign investors selling Indian stocks to buy undervalued stocks in China. Tata Consultancy Services Ltd. is set to kick off the earnings season for Nifty 50 companies Thursday.

 

SECTORAL TRENDS

During the September quarter, earnings are seen subdued for sectors such as industrials, cement, and consumer, Nuvama Equities said. However, some financial, information technology, and chemical companies are likely to post growth, it said. The financial services sector, which has 33% weightage in the Nifty 50 index, is seen weak this quarter. Banks are expected to clock muted profit growth due to slower loan growth and pressure on net interest margins. The cumulative net interest income of six banks in the Nifty 50 is likely to grow 12% while net profit is likely to rise 7%.

 

For banks, the outlook remains cautious, with net interest margins potentially coming under pressure from higher funding costs and the impact of new guidelines on penal interest, Elara Securities said. Some analysts also fear more slippages in the unsecured portfolios of a few banks.

 

The pharmaceutical sector could be among the outliers in terms of healthy growth. Three pharmaceutical companies in the Nifty 50 index are likely to post 12% rise in net profit and 9% increase in net sales for the September quarter, the estimates showed. 

 

Ramp-up in speciality and complex drugs, new launches, and a recovery in prices of generics in the US market will aid these drug-makers, analysts said. Healthy domestic demand and the slight depreciation of the rupee will also benefit these companies, they said.

 

While the overall bottom line may rise, the performance of information technology companies may vary to a good extent during Jul-Sept, brokerages said. The cumulative net sales of six IT companies in the Nifty 50 index may rise 2% on quarter while net profit may rise 3%, the estimates showed.

 

Improvement for some IT companies will be led by higher customer spending in select segments of financial services, a further ramping up of cost takeout deals won in earlier quarters, and reducing cuts in existing programmes, brokerage Kotak Institutional Equities said. 

 

At the same time, some deterioration is likely in demand in the retail vertical, it said. It expects Infosys Ltd., LTIMindtree Ltd., and Persistent Systems Ltd. to report strong sequential growth but sees muted performance from TCS, HCL Technologies Ltd., and Wipro Ltd. 

 

Among the sectors that will see a slowdown in the quarter is the automobile sector. This sector's earnings are likely to rise at the lowest pace in 10 quarters, brokerage Motilal Oswal said.

 

Six automobile companies in the Nifty 50 index could see top-line growth slowing to 3%, as commercial vehicle and some car sales are subdued. However, lower prices of raw materials may help their cumulative net profit grow 14%.

 

Five fast moving consumer goods companies in the benchmark could witness a 2% rise in net profit during the September quarter and a 4% increase in net sales, estimates showed.

 

Commodity-oriented sectors such as cement, energy, and metals are likely to see sharp earnings declines due to lower realisations and prices, said brokerages. Among these, JSW Steel Ltd., Oil and Natural Gas Corp. Ltd., and Bharat Petroleum Corp. Ltd. are expected to see the biggest fall in profit after tax, the estimates showed.

 

Following are the Jul-Sept consensus earnings estimates of companies that constitute the National Stock Exchange's Nifty 50 index. These estimates are based on reports from 19 brokerage houses: 

 

Company	Sales, INR million	PAT, INR million	Sales Y-o-Y Change %	PAT Y-o-Y Change %	Sales Q-o-Q Change %	PAT Q-o-Q Change %	EBITDA, INR million	Result date	Number of estimates available
AUTO
Bajaj Auto	133,034	22,322	23.44	21.57	11.53	12.26	27,136	Oct. 16	7
Eicher Motors +	44,485	11,035	8.12	8.59	1.26	0.19	11,863	--	7
Hero MotoCorp	102,331	11,479	8.34	8.93	0.88	2.25	14,907	--	7
M&M	271,735	35,654	5.44	3.29	0.15	36.47	38,363	--	6
Maruti Suzuki	373,226	38,110	0.70	2.54	5.04	4.41	47,819	--	8
Tata Motors +	1,053,960	50,579	0.25	34.38	(2.45)	(9.13)	146,384	--	7
Total	1,978,771	169,180	2.90	14.01	0.36	5.47
BANK
AXIS Bank *	141,664	64,308	15.04	9.67	5.34	6.56	N.A.	Oct. 17	10
HDFC Bank *	311,239	163,051	13.65	2.06	4.31	0.81	N.A.	Oct. 19	11
ICICI Bank *	205,754	109,347	12.39	6.57	5.23	(1.13)	N.A.	Oct. 26	11
IndusInd Bank*	55,251	21,974	8.83	0.73	2.17	2.10	N.A.	--	10
Kotak Mahindra *	72,750	34,705	15.54	8.76	6.32	(44.47)	N.A.	Oct. 19	9
SBI *	430,619	162,437	9.02	13.35	4.71	(4.65)	N.A.	--	10
Total	1,217,277	555,821	11.80	7.29	4.74	(5.32)
CEMENT
Grasim Industries	75,390	8,833	17.03	11.14	9.36	N.A.	4,506	--	6
UltraTech Cement +	154,580	9,726	(3.46)	(24.10)	(14.45)	(42.67)	22,564	Oct. 21	10
Total	229,970	18,559	2.42	(10.61)	(7.88)	12.86
CHEMICAL
Asian Paints +	86,579	10,961	2.11	(9.07)	(3.48)	(6.32)	15,924	Oct. 23	8
Total	86,579	10,961	2.11	(9.07)	(3.48)	(6.32)
DIVERSIFIED
Adani Enterprises +	N.A.	N.A.	N.A.	N.A.	N.A.	N.A.	N.A.	--	--
Total	N.A.	N.A.	N.A.	N.A.	N.A.	N.A.
ENGINEERING - CAPITAL GOODS
L&T +	580,629	33,168	13.80	2.92	5.34	19.07	61,939	--	6
Total	580,629	33,168	13.80	2.92	5.34	19.07
FINANCE
Bajaj Finance +*	94,296	45,863	31.06	29.16	12.72	17.24	N.A.	Oct. 22	4
Bajaj Finserv +*	N.A.	N.A.	N.A.	N.A.	N.A.	N.A.	N.A.	Oct. 23	--
HDFC Life Insurance Co#	182,967	4,197	24.00	11.39	46.26	(12.13)	N.A.	Oct. 15	1
SBI Life Insurance Co#	221,524	5,144	10.49	35.30	46.65	(0.99)	N.A.	--	1
Shriram Finance*	55,899	20,807	21.66	18.84	6.80	5.05	N.A.	--	7
Total	554,686	76,011	19.04	25.46	34.59	10.32
FMCG
Britannia Industries +	47,746	6,360	7.71	8.25	12.34	25.79	9,053	--	9
Hindustan Unilever	157,882	26,800	3.35	(1.36)	2.93	5.60	37,202	--	10
ITC	178,705	50,927	0.93	3.36	(1.92)	3.56	63,965	Oct. 24	9
Nestle India	53,221	8,768	5.66	(3.44)	10.55	17.44	12,915	Oct. 17	9
Tata Consumer Product +	43,019	3,349	15.21	(0.99)	(1.15)	15.35	6,190	--	6
Total	480,573	96,205	4.05	1.50	2.30	6.92
HEALTHCARE
Apollo Hospitals Enterprise +	54,755	3,581	12.97	53.74	7.67	17.32	7,678	--	5
Total	54,755	3,581	12.97	53.74	7.67	17.32
IT
HCL Tech +	286,026	40,248	7.24	5.03	1.94	(5.45)	61,270	Oct. 14	16
Infosys +	408,457	68,120	4.75	9.66	3.89	6.97	98,199	Oct. 17	16
TCS +	641,350	125,143	7.44	10.34	2.43	3.94	171,170	Oct. 10	16
Tech Mahindra +	131,885	9,773	2.52	97.87	1.41	14.77	16,730	Oct. 19	16
Wipro +	222,351	29,788	(1.25)	12.57	1.24	(0.81)	44,314	Oct. 17	16
Total	1,690,070	273,072	5.14	11.34	2.46	2.97
Jewellery
Titan Co	136,995	10,095	17.49	7.39	13.66	31.10	15,872	--	7
Total	136,995	10,095	17.49	7.39	13.66	31.10
METAL
Hindalco Industries +	559,710	33,762	3.33	53.74	(1.83)	9.83	70,252	Nov. 11	7
JSW Steel +	419,729	4,993	(5.86)	(81.91)	(2.26)	(40.91)	48,413	Oct. 25	8
Tata Steel +	454,285	1,852	(18.41)	N.A.	(17.06)	(80.70)	49,291	--	9
Total	1,433,723	40,607	(7.16)	N.A.	(7.34)	(16.77)
OIL & GAS
BPCL	1,058,982	34,250	2.83	(59.71)	(6.36)	13.61	61,580	--	8
ONGC	337,844	92,285	(3.92)	(9.67)	(4.20)	3.25	175,335	--	9
Reliance Ind +	2,353,728	156,938	1.50	(9.77)	1.55	3.67	395,465	Oct. 14	9
Total	3,750,555	283,473	1.36	(21.50)	(1.34)	4.64
PHARMA
Cipla +	70,517	12,349	5.59	9.20	5.35	4.86	16,132	Oct. 29	8
Dr. Reddy's Lab +	77,941	14,532	12.92	(1.96)	1.27	4.37	22,034	Nov. 5	9
Sun Pharma +	132,705	29,058	8.84	22.32	4.88	2.47	37,023	--	8
Total	281,163	55,939	9.09	12.13	3.97	3.48
POWER & ENERGY
Bharat Electronics	46,350	8,740	16.07	7.58	10.39	12.60	10,853	Oct. 25	6
Coal India +	314,483	71,263	(4.05)	4.80	(13.76)	(34.98)	87,870	--	6
NTPC	421,936	43,069	3.23	10.86	(5.01)	(4.52)	116,730	--	5
Power Grid	112,053	37,989	7.54	(0.91)	11.29	11.34	97,931	--	5
Total	894,822	161,061	1.61	5.06	(5.96)	(18.07)
TELECOM
Bharti Airtel +	411,458	46,722	11.07	248.49	6.85	12.32	219,387	--	6
Total	411,458	46,722	11.07	248.49	6.85	12.32
PORTS
Adani Ports and SEZ +	71,703	24,963	7.88	42.82	(5.15)	(19.81)	42,841	--	4
Total	71,703	24,963	7.88	42.82	(5.15)	(19.81)
RETAIL
Trent	42,496	4,032	47.01	39.20	6.46	17.85	6,879	--	5
Total	42,496	4,032	47.01	39.20	6.46	17.85
Nifty Total	13,896,222	1,863,449	3.85	7.74	0.71	(1.13)

 

Notes:

+ Consolidated Figure

* Net interest Income

Y-o-Y: Year-on-Year

# Net premium income

Q-o-Q: Quarter-on-Quarter

N.A.: Not Available

 

Estimates from:

Antique Stock Broking Ltd., Axis Securities Ltd., Centrum Broking Ltd., Dolat Capital Market Pvt. Ltd., Elara Securities (India) Pvt. Ltd., Emkay Global Financial Services Ltd., HDFC Securities Ltd., ICICI Securities Ltd., IDBI Capital Market Services Ltd., Kotak Institutional Equities, KR Choksey Research, Motilal Oswal Financial Services Ltd., Nirmal Bang Equities Pvt. Ltd., Nuvama Wealth Management Ltd., PhillipCapital (India) Pvt. Ltd., Prabhudas Lilladher Pvt. Ltd., Sharekhan Ltd., Systematix Shares and Stocks (India) Ltd. and YES Securities (India) Ltd.

 

End

 

Compiled by Mayur Nijap and Shivaji Jagatap

Edited by Rajeev Pai

 

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