Thursday, Dec 01, 2022

Commodity slowdown: 3Q earnings unlikely to come out of the woods

Nifty companies are expected to see their revenue contract by 4.3 per cent and their net profit contract 3.3 per cent in the quarter ended December 2015.

The third quarter earnings season, that will get kick-started with TCS’ result announcement on Tuesday, is unlikely to see a reversal in earnings slowdown for India Inc that has been witnessed over the last couple of years.

According to Kotak Institutional Equities, the 30 companies that form the benchmark Sensex at the Bombay Stock Exchange are likely to see a contraction in their year-on-year sales by 2.2 per cent and a marginal 1.5 per cent growth in their aggregate net profit in the quarter ended December 2015.

Nifty companies are expected to see their revenue contract by 4.3 per cent and their net profit contract 3.3 per cent in the quarter ended December 2015.

According to the report, while companies in the pharmaceutical, energy and FMCG sector will drive the profit growth for the group of Sensex companies, contraction in revenue growth will come as a result of decline in revenue of energy and metal companies. The softening in global crude oil prices and other commodities have led to a decline in revenue growth of metal and energy companies.

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“We see improvement in the profitability of oil marketing companies led by the strength in refining margins and lower q-o-q inventory/forex losses. We expect y-o-y decline in the net income of automobiles, cement, industrials, metals & mining, telecom and utilities sectors,” said the Kotak institutional equities research.

Metal and mining companies are expected to remain under pressure. A report released by Religare Research points that metals and mining companies covered by the research house will witness a year on year decline in revenue by 13 per cent and a 33 per cent decline in EBITDA.

“Finished metal prices continue to correct and only be marginally offset by lower RM prices. While the safeguard levy has restricted price declines, minimum import price (MIP), if implemented, has the potential to push up domestic steel prices. We expect the price correction intensity to reduce this year, but believe any sharp recovery would hinge upon GoI’s actions,” said Religare Research.

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The auto sector is likely to see a mixed performance. While the passenger vehicle sales saw favourable impact of new launches and positive traction in medium and heavy commercial vehicle volumes, the two wheeler and tractor sales were adversely impacted by deficient rainfall.

According to Motilal Oswal Financial Services (MOFSL), the group of automobile companies is likely to see a 9.5 per cent year-on-year growth in sales and a 15 per cent growth in profits.

“Improved economic outlook and consequent improvement in business and consumer sentiments—driven by government-led reforms—would be the key catalysts for demand recovery and, in turn, re-rating,” said the research report by Motilal Oswal. IT companies that are set to be the first ones to announce their result, are likely to see some benefit on account of INR depreciation of over 2.5 per cent during the quarter.

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MOFSL research says that, “The depreciation should offset some of the headwinds to margins from decline in revenue, impact of Chennai floods and loss of property and costs related to fungibility of delivery force.” According to the report the top five IT firms are expected to witness a 11.7 per cent y-o-y growth in revenue (in INR terms) during the quarter.

First published on: 11-01-2016 at 02:21:35 am
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