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

Rising prices of crude oil, a depreciating rupee and headwinds due to rising input costs and interest rates weigh on companies as they enter the earnings season.

The Nifty 50 companies will announce results for the quarter ended September soon, with Zee Entertainment Ltd. being the first on Oct. 10. Tata Consultancy Services Ltd. and Hindustan Unilever Ltd. will announce their results in the next two days, respectively.

JSW Ltd. was added to Nifty 50 while drugmaker Lupin Ltd. was excluded during the September quarter.

The Nifty members reported an earnings per share of Rs 114 in the June quarter, missing the consensus estimate of analysts surveyed by Bloomberg by 7 percent, largely due to a surprise loss by State Bank of India.

It would had been the best earnings performance by the largecaps in three quarters if not for the unexpected loss by India’s largest state-owned lender. Overall, 38 companies either surpassed or met forecasts in the three-month period ending June, the highest since the quarter ended September last year.

For the second-quarter ended September, analysts estimate the earnings per share of Nifty 50 companies at Rs 129.1.

Edelweiss Securities in its earnings note estimated a 6 percent profit growth for the Nifty 50 companies with a high risk of earnings downgrade for the current fiscal. Prabhudas Lilladhar said in a report that rising crude prices, a depreciating rupee and liquidity crunch can lead to lower growth rates and reduced earnings in the coming quarters.
The brokerages, however, projected the earnings per share of the Nifty companies to grow in high double digits over the next two years against a contraction in the year ended March.

Key Trends

  • Rupee will be key to topline growth for information technology and pharmaceutical sectors.
  • Rising interest rates can pose a challenge to non-banking financial companies.
  • Auto, cement, industrials, telecom and utilities likely to remain weak.
  • Retail banks expected to do better than corporate banks.
  • Global commodity prices will aid financials of metals and mining stocks.
  • Upstream companies will benefit on higher crude prices.
  • Delayed festive season and Kerala floods to impact financials of consumer companies.

Here’s a compilation of sector-wise projections made by Edelweiss, Prabhudas Lilladhar, Axis Capital, Kotak Securities and IDBI Capital.

Agriculture

  • UPL Ltd. will have a strong Indian business with continuing headwinds in Latin America.
  • Higher MSPs along with normal sowing and normal monsoon will aid agro and fertiliser companies.

Auto, Auto Ancillary

  • Kerala floods and delayed festive season to dent earnings of auto companies.
  • Q2 will be stronger for companies in medium- and heavy-commercial segments.
  • Disappointing financials expected from passenger vehicle-focused companies.
  • Margin pressure expected to continue for two-wheeler segment.
  • Higher input and fuel costs, lack of pricing power to impact earnings.

BFSI

  • Impact of IL&FS issue on banking space will be seen in the quarter-ended December.
  • Elevated credit costs and muted treasury gains would dampen earnings of banks.
  • State-run banks may continue to disappoint on elevated credit costs.
  • Retail-focused private banks are expected to be stable with sustained loan growth.
  • NBFCs may report strong numbers but concerns of rising interest costs remain.

Capital Goods

  • Government spending is without private capex which can dent earnings.
  • Sector is already facing issues of shrinking order book and weak execution.

Cement

  • Weak cement price and higher fuel costs will dent financials.
  • Competition and monsoon seasonality will keep prices subdued.

Construction

  • Road construction companies to report strong financials due to robust order book.

Consumer Durables

  • Rising crude oil prices and a depreciating rupee will dent margins.

FMCG

  • Volume growth likely to be subdued due to a higher base.
  • Margin expansion to be hit by rising crude prices and rupee plunge.
  • Demand momentum continues with rural sales growth outpacing that in urban areas.

Information Technology

  • Strong financials expected due to weaker rupee.
  • High-growth digital business and large transformational wins to aid sector.

Media

  • Double-digit ad revenue growth expected for TV broadcasters.
  • Good box-office performance will aid cinema companies.

Metals

  • Ferrous companies will post strong numbers due to volume and price uptick.
  • Strong commodity prices will aid non-ferrous players in the quarter ended September.

Oil

  • Upstream companies will continue to benefit from higher crude.
  • Higher gas consumption and doubling of LPG prices to aid gas companies.
  • Oil marketing companies will face pressure on marketing margins due to crude.

Pharmaceuticals

  • High base due to GST restocking will dent domestic business growth.
  • Weaker rupee expected to aid revenue growth.
  • U.S.-focused generics businesses will face competition and pricing pressures.

Power

  • Depreciating rupee and higher coal price to dent margins of power companies

Telecom

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

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