Demonetisation: Auto, FMCG, realty, telecom companies worst-hit, India Inc Q3 numbers set to disappoint

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New Delhi | Updated: March 16, 2017 6:33:03 PM

India Inc is likely to witness declining to flat profitability during the October-December quarter as companies start reporting their earnings for the season from January 13, which will once again underline that the economy is moving in the terrain of low...

demonetisation, economy, economists, Chamber of Commerce & Industry, GDP, remonetisation, Gopal Jiwarajka, workforce, NEFT, service tax, money, literacy, RTGSAccording to an analysis done by brokerage research firm Kotak, the net income of the BSE-30 Index is likely to be flat on a year-on-year basis and decline 2.3% on a quarter-on-quarter basis. (Reuters)

India Inc is likely to witness declining to flat profitability during the October-December quarter as companies start reporting their earnings for the season from January 13, which will once again underline that the economy is moving in the terrain of low demand and any broad-based recovery is far off the mark. The October-December quarter earnings will also be significant from another point of view — it will reflect the impact the government’s demonetisation measure, which kicked in from the midnight of November 8, has had on various sectors.

According to an analysis done by brokerage research firm Kotak, the net income of the BSE-30 Index is likely to be flat on a year-on-year basis and decline 2.3% on a quarter-on-quarter basis and several sectors will be impacted by demonetisation.

Kotak has said its universe of companies are expected to post a strong 23% y-o-y growth in net profit but that will be because of low or negative profit or even losses in the same quarter last year. It said excluding the banking, energy, industrials and metals & mining sectors where several stocks had low or negative base, net income of the KIE universe could decline by 3.9% y-o-y. “We expect a y-o-y decline in the net income of automobile, consumer products, real estate and telecom sectors, partly due to the negative impact of demonetisation on sales volumes,” the brokerage wrote in its report.

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In the automobile sector, which has seen low sales in November and December due to demonetisation, the expectation is that volumes would be muted, which along with the increase in commodity costs, will see Ebitda margin impacted of all the car makers. “We forecast net profits of companies under our coverage universe to decline by 10% y-o-y (mainly led by a weak quarter for Tata Motors) driven by a 4.2% y-o-y decline in revenues and a 10.5% y-o-y decline in Ebitda. We expect the Ebitda margin for companies under our coverage universe to decline by 90 bps on a y-o-y basis,” Kotak observed.

Similarly, consumer products, which has borne the impact of demonetisation, the expectation is of a dismal quarter with aggregate revenues and Ebitda/Pat for the KIE consumer universe (ex-ITC/Nestle) likely to decline by 0.2% and 5-6%, respectively.

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In the real estate sector, another casualty of the demonetisation measure, weak sales would result in increase in debt for most developers. New land tie-ups will slow down and the expectation is that debt would increase for most listed developers also, barring Oberoi and Sunteck.

In telecom where the full impact of the launch of Reliance Jio Infocomm’s is to be felt during the quarter, Kotak has estimated that in the voice segment, Bharti Airtel and Idea Cellular would report a 3-4% q-o-q decline in their revenues driven by a sharp 8-10% q-o-q decline in reported voice realisation per minute. It, however, expects voice traffic growth to be strong at +6-7% q-o-q.

In the data segment, the estimate is a flattish y-o-y and 9-12% lower q-o-q revenue for the two companies as customers shift their usage to Jio’s free platform. “Revenues/Ebitda we model a 5.4% q-o-q and 2.5% y-o-y decline in revenues for Idea while for Bharti, we estimate a 4.5% q-o-q decline and 0.5% y-o-y growth. We expect overall wireless segment costs to be broadly flattish for the two companies as increase in network opex is mitigated by some savings on interconnect and regulatory costs. Ebitda will see near -100% flow-through impact of lower revenues and is likely to decline 10% q-o-q for Bharti and around 18% q-o-q for Idea. On a y-o-y basis, this would mean a 4.2% growth for Bharti and an 18.3% decline for Idea,” Kotak has noted.

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