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  1. India Inc to see tepid Q4 earnings

India Inc to see tepid Q4 earnings

Engineering behemoth BHEL announced last week that it would report net loss of Rs 877 crore for FY16 as its turnover for the year fell more than 12% to Rs 26,702 crore.

By: | Mumbai | Updated: April 11, 2016 7:09 AM
Sensex - challenges ahead Kotak Institutional Equities expects the Sensex set of companies to report an increase in profits of 5.7% y-o-y compared with an increase of 1.6% y-o-y in Q3FY16 and fall of 2.4% in Q2FY16. (Reuters)

Engineering behemoth BHEL announced last week that it would report net loss of Rs 877 crore for FY16 as its turnover for the year fell more than 12% to Rs 26,702 crore. The state-owned capital goods player has had a poor run given capex spends by both the private sector and government staying subdued.

As CMIE data shows, stalled projects as a share of total projects, rose for a third straight quarter to 12.3% in the three months to March.

But it’s not BHEL alone; much of India Inc is expected to report very ordinary numbers for three months to March. The reasons for the mediocre performance vary from the collapse in commodity prices, weak rural demand, sluggish investments and the absence of a pick-up in construction activity.

Another big equipment manufacturer Larsen & Toubro (L&T), analysts say, could fall short of its order flow guidance for FY16, in itself a modest rise of 5%-7%. For the nine months to December, L&T posted a 2% y-o-y fall in net profits.

In aggregate corporate results for Q4FY16, however, could turn out to be slightly better than those in Q3FY16 — Kotak Institutional Equities expects the Sensex set of companies to report an increase in profits of 5.7% y-o-y compared with an increase of 1.6% y-o-y in Q3FY16 and fall of 2.4% in Q2FY16.

But that’s only because, much like in the last two quarters, this time around too it’s the oil refiners and marketers that will bump up the bottom line. The swing was sharp in Q3FY16, when five of these players posted a collective net earnings of R5,920 crore compared with a loss of Rs 4,986 crore in Q3FY15.

The tempered expectations are not surprising. Despite commodity prices staying soft, not too many companies would have seen better operating leverage because volumes have been by and large subdued. Hero MotoCorp, for instance, sold virtually the same number of two-wheelers, at just over 6 million, in FY16 as it did in the previous year.

While that reflects waning rural demand, the small increase in cement volumes and the very few launches from real estate companies is an indicator of little action in the construction space. Drug manufacturers are expected to do fairly well, however, as are IT players who stand to gain from a weaker rupee — down 2.4% q-o-q — and a low base stemming from the Chennai floods in December 2015.

Nowhere are the pressure points better seen than in state-owned banks; lenders are estimated to post an 80% plus fall in profits with several of them reporting losses. That will see aggregate earnings for the sector fall by over 25%.

Macro data has been showing mixed trends: while factory output contracted three consecutive months through January, there appears to have been an uptick in the private sector activity- Nikkei India composite PMI hit a three year high of 54.3 in March. However, there has been a rebound in volumes of commercial vehicles –FY16 sales volumes at 0.68 million were up 11.5% y-o-y — indicating there is an upturn of sorts in manufacturing. The country’s GDP grew at 7.3% in Q3FY16 but a closer look by Bank of America Merrill Lynch at the old data series, the economy was nowhere as robust clocking a rise of just 4.6% y-o-y. Reserve Bank of India data shows capacity utilisation for Q3FY16 inched up to a three-month high of 72.5% while average new orders during the period contracted sequentially.

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