The September quarter earnings season will likely be a dull one. Although banks and auto firms will likely report good earnings growth, the rise in aggregate profits will be muted, dragged down by ebitda (earnings before interest, tax and depreciation) losses at oil marketing companies and smaller profits at upstream oil companies. Moreover, profits of cement makers could be pressured by high input costs while those for producers of metals by weak realisations.
Analysts at Kotak Institutional Equities (KIE) estimate the net profits for the universe of companies that it tracks to fall 26% year-on-year and 16% sequentially. Even excluding downstream oil players, profits are estimated to grow only slightly. For the BSE-30 set of companies, net profits are estimated to increase by 9% y-o-y and 6% q-o-q while for Nifty50 firms, they are expected to be muted both y-o-y and q-o-q.
Thanks to better supply of chips and higher ASP (average selling prices), auto manufacturers should post high single-digit revenue growth on a sequential basis. The quarter saw makers of both cars and two-wheelers post better volumes, which should have enabled more operating leverage and better margins. Margins should also have been pushed up by lower raw material costs. Comparing the performance y-o-y would be difficult as volumes were impacted by supply chain issues in Q2FY22.
Revenues for the IT pack are expected to have grown by 2.5-5% sequentially in constant currency terms for the large players and by about 3.5-5.5% for mid-tier companies. More than the Q3FY23 numbers, the Street would watch for the commentary on IT spends of clients and the pricing environment. In particular, deal wins would be closely tracked. Hiring may have slowed during the quarter and targets may be scaled back; managements may signal a peaking of attrition. Most consumer discretionary and stables producers are likely to have seen gross margin pressures during Q2FY23 arising out of higher raw material costs. Moreover, the bigger spends on A&P, ahead of the peak festive season, may also have eaten into ebitda margins. Volumes for staples firms are expected to have seen a modest growth while revenues should have grown by high-single or low-double digits; the F&B space would probably have done better than some home and personal care categories.
Banks should report a robust y-o-y earnings growth on the back of lower provisioning for loans, good growth in advances of about 15% y-o-y and expanding net interest margins (NIMs). Topline growth should have been strong due to healthy disbursements and higher loan rates in the wake of speedy transmission. Moreover, yields in general have been marginally lower than in Q1FY23, so there’s little concern on treasury losses.
Revenues of capital goods and EPC firms should have grown well in Q2FY23 with execution having improved significantly y-o-y given fairly strong order books. Moreover, the moderation in commodity prices should have brought some relief but the impact on margins would probably be felt in H2FY23. Announcements on order inflows would be critical.
With the monsoon setting in early, cement volumes were somewhat sluggish in July but picked up thereafter. Demand is estimated to have risen by about 8-10% y-o-y as falling steel prices saw speedier execution of infra projects. Several producers who had cut prices in May and June didn’t restore them, or did so only partly, during Q2FY23. As such, prices were subdued during the quarter, with some recovery reported in the southern and eastern parts of the country.