Q1 Results: 10 Mid Caps To Watch Out For This Earnings Season

Indian corporates are expected to witness a contraction in earnings and revenue in the first full quarter affected by the coronavirus pandemic that froze economic activity.

India’s economy was already growing at its slowest pace in over a decade when the virus struck. The lockdown, effective March 25, stalled all activities, barring essential services, in April and May before the government started easing curbs. A recovery isn't expected soon and the economy is set contract for the first time in more than four decades. A latest forecast by ICRA Ltd. suggests the contraction could near double digits.

Edelweiss estimates revenue, operating and net profit for the companies in its coverage universe to fall 31%, 38% and 47%, year-on-year, respectively, during the quarter ended June.

The weakness is expected to be broad-based with the exception of banks and technology sectors. Private/PSU banks are the only sectors likely to post marginal growth in earnings, while technology is expected to remain flat, said Motilal Oswal in a note. The brokerage estimates that cement, utilities, oil and gas, consumer, insurance and non-bank financial companies are expected to post double-digit decline in earnings.

Here are the mid-cap stocks, according to analyst forecasts tracked by Bloomberg, that may report the highest expansion and contraction in their operating margin in the April-June period.

Selection Criteria

Mid-cap stocks categorised according to guidelines laid down by the Association of Mutual Funds in India (top 101 to 250 companies)
Rated by more than 10 analysts
Operating margin expectations

Also Read: Analysts Cut Target Price For Three In Every Four Indian Stocks After Q4 Results

The five stocks that are expected to witness the biggest jump in Ebitda margin:

Vodafone Idea

A rise in revenue due to lower subscriber churn, increased data use and price hikes are likely to aid the telecom operator’s margin during the quarter.

Coromandel International

An increase in demand aided by normal monsoon, better crop sowing, and low base of last year are expected to drive the fertiliser and pesticides maker’s operating margin.

IPCA Laboratories

The drugmaker’s margin may be boosted by growth across business segments, increased off-take of hydroxychloroquine—an anti-malarial drug that was a contested potential treatment for the new coronavirus—and pain-related medicines, and lower employee costs.

PI Industries

Growth in custom synthesis and contract manufacturing segment, improved demand from domestic business aided by normal monsoon and increased crop sowing may aid the agrochemical company’s margin in the first quarter.

NIIT Technologies

The IT service management company may see higher margin on the back of lower employee costs and large deal wins.

The five stocks that are expected to witness the worst contraction in Ebitda margin:

PVR & Indian Hotels

The April-June period is likely to be a “no-revenue” quarter for multiplexes and hospitality as operations remained shut due to the coronavirus outbreak. The employee expenses and other fixed costs may even lead to an operating loss for these companies during the period.

Bata

Lower volumes, higher discounting and adverse product mix may hurt the footwear maker in the three months ended June.

Minda Industries

A fall in revenue on account of lower demand from automakers amid supply chain disruptions and labour issues is expected to weigh on the auto parts manufacturer.

Metropolis Healthcare

Lower footfalls, high operating costs and pricing pressure from local and unorganised competitors may weigh on the diagnostic chain operator's operating margin in the first quarter.

(The reasons for expansion and contraction in margin have been compiled from the research reports of Motilal Oswal, Edelweiss Securities, Emkay Research, Elara Capital, Prabhudas Lilladher and IDBI Capital, among others.)