Q3 Earnings Preview | Citi Research Expects Another Tepid Quarter  For India Inc.
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Q3 Earnings Preview | Citi Research Expects Another Tepid Quarter For India Inc.

Indian companies are in for a “tough” third quarter as weak earnings from commodity firms will pull down the overall performance, according to Citi Research.

The commodities sector is under margin pressures because of weak realisations in the steel and cement industries, Citi said in a report. It was further weighed down by muted refining and petchem trends in energy.

The overall earnings growth of India Inc. in the three months ended December is expected to be similar to that in the previous quarter even as corporate tax rate cut benefited companies, it said.

India’s Finance Minister Nirmala Sitharaman had cut the corporate tax rate on domestic companies to 22 percent from 30 percent on Sept. 20. The move came as the Narendra Modi-led government was looking to stimulate economic growth, which has spiralled down for several quarters to its lowest in six years.

“The benefit of tax cuts and good numbers of financials have been negated by global sectors such as metals and energy,” Surendra Goyal, managing director and India research head at Citi, said during a conversation with BloombergQuint. The research firm remains overweight on financials and healthcare, he said.

Citi expects earnings of the companies tracked by it to grow 6 percent year-on-year, with earnings of S&P BSE Sensex and NSE Nifty 50 Index constituents estimated grow 16 percent and 8 percent, respectively.

Watch | the full discussion with Citi Research analysts here...

Also read: Q3 Earnings Preview: India Inc. May Face Another Tough Quarter As Slowdown Persists

Citi’s Sectoral Outlook


  • A slight decline in gross margin is expected on a sequential basis due to higher discounts and elevated raw material costs.
  • There is some volume recovery in select companies. It augurs well for operating leverage and could partially offset raw material cost pressures.
  • The key to look out for is BS VI readiness and impact on cost and prices.

Capital Goods

  • Overall, the inflows for capital goods companies is expected to be driven by government ordering, with private orders remaining subdued.
  • Among consumer electricals/appliances, any commentary on demand trends would be key to watch.


  • Citi expects the majors to report year-on-year volume growth during the quarter.
  • It also expects realisations to decline 3.5-5.5 percent quarter-on-quarter across companies, with East and South India witnessing the sharpest fall.


  • The research company expects more modest growth trends for most staples companies in the period as issues pertaining to rural demand, traditional channels, extended monsoons continue.
  • Net profits should see a “decent improvement” given the tax cuts.
There may be [volume growth surprises] in the food and beverages segment and the moderate trend is expected to continue in the home and personal care segments. You might see a benefit coming out of a lower base and market share gains in stocks such as Britannia Industries Ltd. and Dabur India Ltd.
Aditya Mathur, Analyst, Citi Research


  • The recoveries from non-performing assets will be higher in the quarter led by a few large-ticket resolutions such as Essar Steel Ltd., Citi said. However, this would be partly offset by higher provisioning towards DHFL.
  • Loan growth will be led by retail and working capital corporate segments while growth in project financing and SME segments will remain subdued.
  • Margin of banks should be stable on a sequential basis, according to the report.
  • Retail non-banking financial companies and housing financiers should continue to see a healthy loan growth, while disbursement towards real estate will remain muted.
The difference for banks would be recovery numbers as assets such as Essar Steel Ltd. and Ruchi Soya were resolved. But obviously, not all banks are equally benefiting here. It’s just the lenders with higher corporate books in the past.
Manish Shukla, Director, Citi Research 


  • Citi expects some sequential improvement for most of the pharma companies, driven by a pick-up in biosimilar and specialty revenues, and seasonality in the U.S.
  • Hospitals and diagnostics companies would continue clocking “good” growth and margin improvement in a seasonally weak quarter.


  • Citi expects sequential improvements in average revenue per user for all three telecom companies (Reliance Jio Infocomm ltd., Vodafone Idea Ltd., and Bharti Airtel Ltd.) on seasonality. There will be a “minor impact” of December tariff hikes.
  • The final adjusted gross revenue liability and full extent of ARPU uplift from tariff hikes will be the key things to watch out for.

Below are the disclosures for the Citi analysts:

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