Nifty earnings poll: PAT, sales to fall; margins may expand

The net profit of aggregate Nifty-50 firms is expected to decline 2% on year while revenues are likely to shrink 7%, led by poor performances of Tata Motors, Hindalco, Vedanta and oil and gas index majors

Indian companies will continue to struggle in Jul-Sep as tepid demand in the domestic as well as international markets are likely to weigh on their earnings even though margins may expand a bit due to muted input costs, analysts said.

Most analysts expect both the net profit and revenues of the 50 companies that are part of the National Stock Exchange's Nifty index to decline in the quarter ended September.

"EBIDTA margin is expected to be up a marginal 5-10 basis points (bps) to 17.5% in the second quarter," said CRISIL Research. "Companies in the FMCG (fast moving consumer goods), automobiles, airline, tyre, and power generation sectors are likely to see an expansion because of lower raw material costs."

EBITDA is earnings before interest, tax, depreciation and amortisation, also referred to as operating profit. The net profit of aggregate Nifty-50 companies is expected to decline 2%on year while revenues are likely to shrink 7%, led by poor performances of Tata Motors Ltd, Hindalco Industries Ltd, Vedanta Ltd, and oil and gas index majors.

"12 out of the 30 Sensex companies are expected to show a contraction in profits," Bank of America Merrill Lynch said in a preview note. "Even the broader BOFAML Universe sales is expected to show a dip on a YoY basis." Aggregate EBITDA margins for Sensex companies are expected to show a 150

bps expansion on a YoY basis, according to BofA Merrill Lynch.

The strong earnings from information technology companies will be mostly offset by the dismal show by metals and oil and gas sectors, analysts said. "Fragile consumption demand, particularly in the rural areas, weakness in investment-linked sectors and the meltdown in global commodity prices will more than offset the healthy topline growth expected in the export-oriented sectors" CRISIL said.

The aggregate net profit of information technology majors--Infosys, HCL Technologies, Tata Consultancy Services, Tech Mahindra, and Wipro--is seen rising 5% sequentially in Jul-Sep and net sales up 6%.

EBIDTA margin of information technology services and pharmaceutical companies may shrink by 70 bps and 130 bps, respectively, because of pressure on realisations, CRISIL said.

"On the other hand, a surge in data revenue and control over marketing costs will boost the EBIDTA margin of telecom companies by close to 250 bps," it added.

According to CLSA Research, revenue growth in dollar terms will be 2.54.5%, moderated by crosscurrency headwinds of 5070 basis points while rupee depreciation and absence of visa costs may lift margins. "We expect Infosys to lead growth with 4.6% ccy (constant currency) QoQ and Wipro to lag growth with 2.4% ccy QoQ," CLSA said.

The net profit of frontline metal companies is estimated to fall by a massive 44% on year while net sales are likely to fall by 16%. Banks are seen reeling under the pressure of weak credit growth, modest net interest income, and deteriorating asset quality.

"We expect elevated provisioning for fresh slippages, particularly from restructured loans, as RBI's forbearance on restructuring comes ended in FY15," said Emkay Global Financial Services in a note.

Muted credit growth and full impact of the base rate cut implemented in AprJun will weigh on the margins of banks. -Cogencis