(Danish Siddiqui/Reuters)
(Danish Siddiqui/Reuters)

Earnings may moderate in March quarter on surging crude

  • Q4FY19 earnings season will be a repeat of Q3FY19, with financials driving performance, says Motilal Oswal
  • While banks, cement and utilities are likely to post good numbers, metals, auto, retail and FMCG are likely to moderate, says Edelweiss

Mumbai: The surge in crude oil prices in the January-March period is expected to further delay a recovery in corporate earnings. The quarterly earnings season, starting this week, will determine if the ongoing rally in Indian equities will continue.

While corporate banks, cement and utilities, which have been a drag on earnings, are likely to post good numbers, performance of former champions such as metals, auto, retail, and fast-moving consumer goods (FMCG) is likely to moderate in Q4FY19, Edelweiss Securities Ltd said in a 5 April note. If Nifty companies meet its March quarter net profit growth estimate of 18%, these companies will post 12-13% growth in FY19 versus 0% in FY18, it added. “With regards to FY20, growth numbers are still optimistic at 25-30% and are thus prone to earnings downgrades risks."

The brokerage firm said Ebitda margins are likely to contract 124 basis points (bps) YoY, largely due to commodities.

Excluding commodities, margin expansion is estimated to be more modest at 28bps YoY. One basis point is a hundredth of a percentage point.

Kotak Institutional Equities expects net income of Sensex companies to grow 1%, while that of Nifty to increase 5% (excluding banks). It estimates EPS of the Sensex at 2,097 for FY20 and 2,468 for FY21 and that of Nifty 50 Index for FY20 and FY21 are at 641 and 750, respectively.

According to Motilal Oswal Securities Ltd, the Q4FY19 earnings-report season will be a repeat of Q3FY19, with financials driving performance. “Global cyclicals–the driver of earnings growth over the last few quarters–have decelerated sharply...IT is likely to post the fifth straight quarter of double-digit profit growth, aided by momentum in deal activity. NBFCs might face significant deceleration in profit growth, but still post a respectable double-digit number," it said.

Motilal expects Nifty sales, Ebitda and net profit to increase by 11%, 2% and 15% on a base of 16%, 22% and 8% growth, respectively. Excluding corporate banks, Nifty profits are expected to decline 2.7% YoY. It has slashed Nifty earnings per share (EPS) estimates for FY20 by 2.1% and 3.6% to 486 and 606, respectively. It sees EPS growth of 6.8% and 24.8%, respectively, for the Nifty for FY19 and FY20. Excluding corporate banks, FY20 Nifty profits are expected to grow 14%.

Prabhudas Lilladher Pvt. Ltd said sales growth in the March quarter will be led by agriculture, aviation, banks, IT and consumer staples. “Aggregate margins will expand by 163bps. We expect muted performance from autos and pharma. Oil and Gas will show impact of inventory gains while banks will gain due to lower provisions and write backs in Q4FY19. IT, capital goods, staples and metals will have a steady quarter," it said in a report on 5 April.