All You Need To Know Going Into The Third Quarter Earnings Season

Lower prices of crude and commodities, a fluctuating rupee and weaker-than-expected festive sales are among the factors that will impact India Inc.'s third-quarter earnings.

The Nifty 50 companies will announce their results for the quarter ended December starting with IndusInd Bank Ltd. on Jan. 9. Tata Consultancy Services Ltd. and Infosys Technologies Ltd. follow over the next two days, respectively.

The index constituents reported an aggregate earnings per share of Rs 121.4 in the September-ended quarter, missing the consensus estimate of analysts tracked by Bloomberg by nearly 6 percent, largely because Sun Pharmaceuticals Industries Ltd., Grasim Ltd., Tata Motors Ltd. and state-run oil marketers missed profit estimates. Overall, 34 companies either surpassed or met forecasts during the period, the lowest in at least the past five quarters.

For the quarter ended December, analysts estimate the earnings per share at Rs 138.

Key Trends

• Correction in global commodities will dent earnings of oil and metal stocks.
• Average rupee move expected to be a tailwind for IT, pharma sectors.
• Monthly auto sales have shown weakness.
• Corporate-facing banks and government-owned lenders may outperform; non-bank financial companies may lag.
• Weak festive season may dent volume growth for consumer-focussed companies.

Sector-Wise Expectations

Agriculture

• Adverse climatic situations like drought in Maharashtra and Karnataka to impact numbers.
• Export-focussed players to grow better than domestic peers.
• UPL will show both volume and realisation growth on the back of strong performance in Latin America.

Automobile

• Q3 numbers expected to be weak on the back of lower than expected monthly sales numbers and inventory correction.
• Weak volumes will dent performance of auto component industry, too.
• Increase in commodity prices and higher discount levels will dent margins.
• Recent decline in lead prices will aid battery makers; lower rubber prices will aid tyre makers.

Aviation

• Q3 is the strongest quarter for aviation companies due to holiday season.
• InterGlobe Aviation Ltd. should turn profitable while Jet Airways Ltd. and SpiceJet Ltd. will reduce losses due to lower crude prices.

Financial Services

• Bank earnings will benefit from the pick-up in loan growth.
• Continued moderation in NPA formation and credit costs will aid earnings.
• Bank profitability may rebound on the back of treasury gains.
• Housing finance companies may see weakness on real-estate slowdown.
• Yes Bank Ltd. and IndusInd Bank Ltd. need to be watched for provisioning.

Capital Goods

• Orderbook will drive execution growth for companies.
• Interest costs remain a concern that will dent working capital cycle.
• Margin improvement will continue with weaker order inflow.

Cement

• Single-digit volume growth with lower average selling price expected.
• Weak pricing power remains a worry despite favourable input costs.

Consumption

• Moderation in growth with cautious commentary expected in FMCG companies.
• Double-digit volume growth expected in paint companies due to festive demand.
• Sustained rural demand and shift to organised plays will aid financials of FMCG companies.
• Cigarette companies may outperform in Q3 due to strong volume growth.

Information Technology

• Q3 is a seasonally weak quarter for IT companies but will be aided by rupee strength.
• Steady organic growth seen despite furloughs.
• Supply side pressure and seasonality may cause weakness in margins.
• See no material change in guidance from top IT companies.

Oil & Gas

• Muted quarter due to sharp fall in crude prices and gross refinery margins.
• Lower crude prices will result into inventory losses for oil marketers.
• Energy business is expected to be muted for Reliance Industries Ltd.

Metals

• Base effect will catch up with both ferrous and non-ferrous companies.
• Correction in prices of base metals to impact earnings.
• Tough macro environment, lower prices and demand slowdown in China to weigh.

Pharma

• U.S.-focussed generics will continue to face competition and pricing pressure.
• High base due to GST restocking will dent domestic business growth.

Telecom

• Continued down-trading of average revenue per user will dent financials.
• Exits will dent earnings of mobile tower companies.