Street expects another dismal quarter; revenue & earnings growth seen flat to negative
The Street is bracing itself for yet another quarter of dismal corporate earnings as the results season sets off next week. Most experts see the lacklustre performance of India Inc to extend for another quarter, with both the revenue and earnings growth expected to remain flat or decline on y-o-y basis.
Kotak Institutional Equities pegs Sensex earnings for the Q4FY15 to remain flat (up 0.1% y-o-y). They expect energy, metals & mining and industrials to be a drag on aggregate earnings while banking, consumer goods, pharma and telecom are likely to lead the quarterly performance.
Not surprisingly, excluding banks, the domestic brokerage sees benchmark earnings to contract by 7.8% compared to the same period last year, a steepest decline since the quarter ending December 2008.
After the corporate India failed to meet tall earnings expectations in the three moths to December 2014, analysts were quick to cut their earnings expectations for FY15 and FY16. Since early November, the consensus Sensex EPS (earnings per share) numbers have come down by 4% and 6% to R1521 and R1788, respectively, shows data compiled by Bloomberg. The grim earnings performance is considered as one of the triggers that intensified the market correction since early March in which the benchmark indices lost close to 7% and currently stand 2% below their record highs.
According to Edelweiss Financial Services, extremely weak rural demand, high corporate real rates, and contraction in government spending are expected to weigh on domestic consumption and investment-oriented sectors during the quarter.
While describing the March quarter as a “perfect storm” that resulted into broad-based slowdown, Edelweiss points out that lower input prices is the only solace for India Inc as it would provide a cushion to the bottom line of companies. They do not rule out further downgrades to earnings forecast and see another 2-3% downside to FY15 earnings forecast.
Crisil Research, in its latest report said, due to lower commodity prices, India Inc may report its slowest revenue growth in seven quarters (2.7% y-o-y).
The quarterly performance of banks is expected to continue reflect muted loan growth – it fell to a 21 year low of 9.8% in FY15 – through its impact on net interest income. The contribution of treasury income is seen cushioning the earnings of the sector in general even as the divide between the performance of private and public sector banks.
According to Barclays Capital, PSBs may report weak per-provision operating profit (PPOP), and that net slippages and credit costs may remain elevated at levels similar to the previous quarter. The foreign brokerage expects SBI to report strong yoy earnings growth of 34% even as the other three major PSBs may report muted to negative profit growth. At 2.1% of operational loans, SBI is also expected to report the slowest net slippages compared to peers PNB (3.6%), BoI (2.7%) and BoB (2.6%).
Analysts expect IT services providers to report low dollar revenue growth due to seasonal weakness while cross currency headwinds are seen weighing on the margins. Q4 is likely to see impact of reduced working days and the usual delays in project ramp-up at the beginning of the calendar year.
These expectations go in tandem with the pre-earning commentary given by HCL Technologies in early April wherein it cautioned that adverse currency movements may hurt its March quarter revenue by upto 280 basis points.
Oil & gas, which led last quarter’s earnings disappointment, is likely to report another difficult quarter led by Cairn India. While oil marketing companies may report robust profits on the back of zero under-recoveries, Reliance Industries, which reports next week, may see its highest-ever refining margin this quarter.
Numbers of FMCG companies are likely to indicate volume growth hurdles and impact of lower-price led top line growth. The order inflows of capital goods and industrial companies may remain unimpressive even as most companies including L&T are seen maintaining healthy operating margins y-o-y.
Pall of gloom
* The quarterly performance of banks is expected to continue reflect muted loan growth through its impact on net interest income
* PSBs may report weak per-provision operating profit. Net slippages and credit costs may remain elevated as last quarter
* IT services providers likely to report low dollar revenue growth due to seasonal weakness while cross currency headwinds are seen weighing on margins
* Oil & gas earnings to remain weak, led by Cairn India. OMCs may report robust profits on the back of zero under-recoveries. RIL may see its highest-ever refining margin this quarter
* Numbers of FMCG companies are likely to indicate volume growth hurdles and impact of lower-price led top line growth