NIFTY50 FIRMS’ PROFIT MAY RISE 24.8% IN Q2

Index companies in non-cyclical space, other manufacturers likely to report 0.3% YOY decline in net profit

Brokerages expect another quarter of strong earnings growth for India's top listed companies, with the combined net profit of the Nifty50 companies likely to rise 24.8 per cent YOY in the September quarter of FY22. Earnings growth is expected to be led by metals & mining companies (earnings up 209 per cent YOY), banks & financials (up 25 per cent), and oil & gas (up 17 per cent). The index companies in the noncyclical sector and other manufacturers may, however, report a 0.3 per cent YOY decline in their combined net profit in the second quarter. This, according to analysts, hints at margin pressure for manufacturers and consumer goods companies because of a steady rise in commodity and energy prices and their inability to take a price hike due to weak consumer demand.

KRISHNA KANT writes

Brokerages expect another quarter of strong earnings growth for India's top listed companies, with the combined net profit of the Nifty50 companies likely to rise 24.8 per cent year-on-year (YOY) in the September quarter of FY22. Earnings growth is expected to be led by metals & mining companies (earnings up 209 per cent YOY), banks & financials (up 25 per cent), and oil & gas (up 17 per cent).

The index companies in the non-cyclical sector and other manufacturers may, however, report a 0.3 per cent YOY decline in their combined net profit in the second quarter. This, according to analysts, hints at margin pressure for manufacturers and consumer goods companies because of a steady rise in commodity and energy prices and their inability to take a price hike due to weak consumer demand.

“We expect the Q2FY22 earnings season to be strong on revenue growth on a YOY basis but there may be margin pressure due to the surge in costs across industries. We are not overly concerned about the expected performance but yes, the growth rate can plateau from the second quarter onwards,” write analysts at IDBI Capital on their earnings estimate for Q2FY22.

The Nifty50 companies are expected to report a combined net profit of around ~1.34 trillion in Q2FY22, up 24.8 per cent from ~1.07 trillion in Q2FY21 and around 10 per cent from ~1.22 trillion in Q1FY22, according to brokerage estimates. Earnings in the second quarter could be just shy of the all-time high quarterly earnings of ~1.35 trillion in Q4FY21.

The index companies’ combined net sales (net interest income in the case of lenders) is expected to grow 27.4 per cent YOY to around ~10.9 trillion, from ~8.54 trillion a year ago. Nearly half the incremental growth in revenue should come from the four oil & gas companies in the index -- Reliance Industries, Indian Oil, Oil & Natural Gas Corp, and Bharat Petroleum. Their topline is expected to be boosted by a sharp YOY rise in energy prices in Q2FY22. In all, the three cyclical sectors should account for nearly 78 per cent of incremental growth in net sales of the index companies in the September quarter.

“Revenue growth (exfinancials & public sector oil companies) is largely driving earnings, though the expansion in operational margins seems to be tapering on account of the surge in input costs. Having said that, earnings for our coverage universe will likely grow 19 per cent, largely on the back of a robust topline,” write analysts at YES Securities in their earnings estimate.

The analysis is based on the earnings estimates for Q2FY22 by brokerages, including YES Securities, IDBI Capital, Motilal Oswal Financial Services, Philip Capital, Emkay Global, and Centrum Capital.

While 36 of the 50 index companies are expected to report a YOY rise in earnings in the second quarter, nearly 100 per cent of incremental growth in the combined earnings of the index companies should be accounted for by those in three sectors -- metals & mining (60 per cent), banking & finance (25 per cent), and oil & gas (15 per cent).

The four metals & mining companies in the index -- Coal India. Hindalco, JSW Steel, and Tata Steel -- are expected to report their best-ever quarterly profit of nearly ~23,800 crore in Q2FY22, more than three times higher than ~7,700 crore a year ago and up 26 per cent from nearly ~18,900 crore in the June 2021 quarter. This way the metal sector should account for 60 per cent of all incremental growth in corporate earnings in Q2FY22.

With this, metals & mining companies are expected to overtake tech firms, such as Tata Consultancy Services, Infosys, and Wipro, to become the third-most profitable industry in the country, after banks & financials and oil & gas.

The five tech companies in the index are expected to report a net profit of around ~22,300 crore in Q2FY22, up 17.8 per cent year-on-year from ~18,920 crore.

Banks, insurance, and non-banking financial companies are also expected to report their highest-ever quarterly profit of nearly ~33,700 crore, a rise of 25 per cent YOY. In comparison, oil & gas companies combined earnings, including Reliance Industries, are expected to grow 17 per cent YOY to ~26,800 crore.

Among individual index companies, brokerages expect Tata Steel to report the biggest positive swing in profit -- up 580 per cent YOY-- followed by JSW Steel (337 per cent YOY), and Grasim Industries (194 per cent YOY).

In fact, with nearly ~9,000 crore swing in profits, Tata Steel alone should account for nearly a third of the combined swing in the profits of all index companies in Q2FY22, while JSW Steel should account for another 20 per cent.

Other index companies that are likely to report a big rise in earnings include State Bank of India, ONGC, Bharti Airtel, Bajaj Finance, Axis Bank, and Reliance Industries. At the other end of the spectrum, Larsen & Toubro is likely to be the biggest laggard with a 70 per cent YOY decline in earnings, followed by Tata Motors (rise in losses), Indian Oil (down 15.3 per cent), National Thermal Power Corp (down 22.5 per cent), Kotak Mahindra (down 30.1 per cent), and Maruti Suzuki (down 55.8 per cent).

The index companies’ combined net sales is expected to grow 27.4 per cent YOY to around ~10.9 trillion, from ~8.54 trillion a year ago. Nearly half the incremental growth in revenue should come from Reliance Industries, Indian Oil, Oil & Natural Gas Corp, and Bharat Petroleum