Corporate earnings likely to disappoint in Sep quarter
MUMBAI: Indian companies are set to report a drop in revenue and profit for the second straight quarter amid a slump in consumer demand that sent the government scrambling to boost investment and consumption through a raft of measures, including a tax cut for corporates.
The ongoing liquidity crunch faced by non-bank lenders, floods in parts of the country and a muted initial response by consumers to the festive season have added to the woes of Indian companies in the quarter ended September 30.
Earnings for the fiscal second quarter start with Tata Consultancy Services Ltd, Infosys Ltd and IndusInd Bank expected to report their quarterly performance this week.
Indian consumers are holding back on spending as wage growth slows and jobs vanish, amid the slowest economic growth in six years. The government has since announced several measures to boost sentiment and encourage companies to create more jobs. In its boldest move yet, the government on September 20 slashed corporate taxes to boost the sagging economy and revive private capital expenditure.
Analysts said consumer sentiment and corporate profitability may have declined to a multi-year low in the September quarter given poor automobile sales, a real estate slowdown, corporate defaults on debt, pressure on exports and global trade wars.
According to Shiv Diwan, co-head, institutional equities at Edelweiss Securities Ltd, revenue and profit may decline 3% and 4%, respectively for companies that the brokerage covers. For members of the National Stock Exchange’s Nifty index, he estimates revenue and profit to decline 4% and 2%, respectively. “Even excluding volatile components such as commodities and corporate banks (which will incur one-time write down of deferred tax assets), top-line/ profit growth is estimated at 3% and 4%, respectively,” he said.
Others concur. Going by the macro numbers available so far for the current year, second quarter earnings are expected to be unexciting and may disappoint in some cases, said Deepak Jasani, head of retail research at HDFC Securities. “Advance and corporate tax collections have grown just 6% till mid September this fiscal, collections of GST for September came in at a 19-month low; sales of automobiles fell for the 11th consecutive month in September, and the index of core infra industries fell 0.5% in August, the lowest growth in 52 months,” he said.
Analysts at Prabhudas Lillad
CONSUMER SENTIMENT AND CORPORATE PROFITABILITY MAY HAVE DECLINED TO A MULTI-YEAR LOW IN Q2, SAY ANALYSTS
her estimate a 0.3% decline in sales of companies under their coverage. They expect aviation, pharma and media companies to report good sales growth while auto, metals and oil and gas companies will be the laggards in quarterly earnings performance. “There will be widespread margin pressure in auto, durables, IT and metals. Banks will gain due to lower provisions and while cement will show benefits of higher realizations. Consumer will show impact of poor rural demand. Auto will show impact of volumes declined and negative operating leverage,” Prabhudas Lilladher said in October 3 report.
Analysts at Edelweiss Securities Ltd expect most consumer goods companies to report low single-digit volume growth. “With most consumer companies not willing to take on credit risk, they are extending credit to distributors selectively. This liquidity crunch is now hurting retailers as well, which is further pressuring volumes at consumer goods companies. Besides, floods in parts of India would hamper demand somewhat,” analysts at Edelweiss said in a report on October 3.