The March quarter earnings season is again expected to be driven by export-oriented companies, given that the rupee depreciated for most part of the period. Although a tougher domestic macro-environment would continue to weigh on the profitability of corporate India, export-driven sectors are seen providing some respite to the aggregate financial performance of India Inc.
?… trend of past few quarters is expected to persist. Export-oriented sectors (IT, pharma) are expected to register robust set of numbers, while domestic economy-linked sectors ? investment related (cement, construction, capital goods) and consumption related (staples and autos) ? are expected to post sluggish numbers,? said Edelweiss Securities in a preview report.
The domestic brokerage pegged y-o-y net earnings growth at 13.2% and 11.1% for Sensex companies and its coverage universe, respectively, excluding Sesa Sterlite, for three months to March 2014.
During the quarter, the Indian currency lost nearly 14% of its value compared to the same period last year. On a sequential basis, however, the rupee lost close to 5% of its value as it averaged at about 61.79 against the dollar compared to 59 in the previous quarter.
According to Deutsche, among the Sensex universe, Bharti (86%), TCS (41%), Tata Motors (35%), HUL(15%), ITC (13%) and pharma companies are likely to lead y-o-y earnings growth. The foreign brokerage expects IT majors to benefit from a 15-17% dollar revenue growth over and above the rupee depreciation.
Tata Motors, on the other hand, is seen benefiting from a 6% y-o-y volume growth in its luxury business, JLR, and a margin expansion of 70 basis points on account of a favourable product mix.
Most analysts see capital goods and public sector banks dragging down the overall earnings growth. In the banking space, while earnings of public sector banks are likely to be weighed by an adverse tax rate and higher provisioning, their quarterly numbers may also reflect a slowing loan growth and higher credit costs.
Both the metals and energy sectors are likely to see divided performance. Most analysts expect steel makers and oil marketing companies to report better numbers due to higher steel prices and likely subsidiary compensation from the government, respectively. On the other hand, non-ferrous metal producers and oil & gas producers are expected to see a mixed earnings momentum. In case of consumer goods companies, while the demand slow-down is likely to persist, the margins of FMCG players may not get impacted given that most of them have resorted to higher pricing and lower promotional costs.
Although many experts see a double-digit growth as an encouraging sign, some also that the consensus earnings forecast for fiscal 2014-15 still may have a downside risk. ?FY14 Sensex EPS is expected to be ~INR1355, implying ~10-11% growth. However, given weak domestic demand, delayed rate cycle and stretched private and PSU banks? balance sheet, risks to FY15 EPS forecast of ~17-18% persist,? said Edelweiss in its preview note.