Q1 Results: Why India Inc. Is Staring At A Challenging Earnings Season

Delayed monsoons, consumption slowdown, lower commodity prices and fluctuation in the rupee are expected to weigh on India Inc.’s first-quarter earnings.

The Nifty 50 companies will announce their results for the quarter ended June starting with Tata Consultancy Services Ltd. on July 9. Infosys Ltd. and IndusInd Bank Ltd. will follow on July 12.

The forecast of muted earnings comes after the number of index constituents that failed to meet expectations jumped the most in at least two years in the preceding three months. The combined earnings per share stood at Rs 140 in the quarter ended March—missing the consensus estimate by half-a-percent. Overall, 32 of the 50 companies either met or beat expectations during the period, the lowest in seven quarters.

For the quarter ended June, analysts estimate the aggregate earnings per share of the Nifty 50 companies at Rs 120.6.

Key Trends

• Auto, consumer and commodity-related stocks to be impacted by slowdown.
• Financial stocks will be better off.
• A delayed monsoon to impact consumption and rural markets.
• Fall in global commodity prices may impact oil and metal stocks.
• Marginal appreciation in the rupee during the quarter may affect technology and pharma stocks.

Here’s how individual sectors are expected to fare:

Agriculture

• Agrochemical sector’s revenue growth to be led by exports.
• Sales have been pushed forward to the second quarter due to slower start of monsoons.

Aviation

• The sector will benefit due to the closure of Jet Airways (India) Ltd.
• Capacity constraints in peak holiday season will lead to higher yields.

Automobile

• Weakness will continue for the sector led by poor monthly auto sales.
• Volumes may take a hit on account of inventory correction.
• Two-wheelers will perform better than four-wheelers; auto ancillary will disappoint.

Financial Services

• Business growth to moderate for banks and slippages will be contained.
• High treasury profits, improving net interest margin and steady loan growth to aid earnings.
• Banks with strong capital will continue to gain market share.
• Housing finance companies is expected to bear the maximum brunt of liquidity issues.
• Vehicle finance companies are likely to see moderate growth.

Cement

• Fewer construction activities due to election will impact volumes across regions.
• Realisations are expected to improve.

Construction And Capital Goods

• Twin impact of election-related slowdown and benign liquidity conditions.
• Companies with strong existing order book are expected to perform better.

Information Technology

• Decline in EBIT margin to continue despite benefits from currency depreciation.
• U.S. economic outlook has been volatile after a strong FY19.
• Client-specific or industry-specific challenges to impact revenue growth.

Oil & Gas

• Earnings for upstream companies to benefit from higher average crude oil prices.
• Reduced downstream margins are expected drag down earnings for oil marketing companies.

Telecom

• Telecom operators continue to lose subscribers owing to minimum average revenue per user plans.

Consumption

• Consumer goods makers continued to witness moderation in rural demand during the quarter.
• Expectations of a delayed and deficient monsoon to impact demand.
• Strong heat wave to aid makers of air conditioners.
• Paintmakers may offset weakness in volume with price hike.
• Broad-based moderation witnessed in same-store-sales growth due to high base.

Pharmaceuticals

• Lack of major launches.
• Growth will be led by domestic businesses for most drugmakers.
• Hospitals and diagnostic companies will report weak earnings.

Metals

• Steelmakers are expected to report a rise in volumes with lower spreads.
• Metal companies may report a drop in profits due to high base.
• Miners such as NMDC Ltd. and Coal India Ltd. may report an improvement in earnings.

Media

• Advertisement revenues to be impacted due to new TRAI order.
• Indian Premier League and World Cup to help DTH companies/multiple-system operators to perform better.
• Weak box office collections to dent performance of multiplexes.
• Election spending may boost earnings of print companies.

Real Estate

• Residential sales expected to be moderate due to stretched liquidity conditions.

(The reasons have been compiled from the research reports of Antique Broking, Deutsche Bank, Edelweiss Financial Services, Kotak Securities, Prabhudas Lilladher.)