Septem­ber quar­ter earn­ings seen slip­ping on costly oil, weak ru­pee

Au­to­mo­biles and banks may post sub­dued re­sults in the sec­ond quar­ter but IT and pharma are likely to gain from a weak ru­pee


he risk of earn­ings down­grades looms large over the oil and gas, and bank­ing sec­tors, given that a weak ru­pee and costly crude oil will im­pact cor­po­rate re­cov­ery. Ex­cept com­pa­nies earn­ing in dol­lars, few sec­tors are likely to re­main un­scathed in the cur­rent tur­moil.

On Mon­day, the ru­pee closed at 74.07 against the dol­lar, while Brent crude traded at $82.97 per bar­rel.

“The green shoots are start­ing to fade. Earn­ings down­grades are not go­ing to dis­ap­pear,” said Dhanan­jay Sinha, head of re­search at Emkay Global Fi­nan­cial Ser­vices Ltd, adding that while con­sen­sus Nifty net profit growth es­ti­mate for FY19 was around 25%, it will now be 8-10%.

Ko­tak In­sti­tu­tional Eq­ui­ties has cut its FY19 net profit growth es­ti­mate for the Nifty from 20% to 17%, said man­ag­ing direc­tor and co-head San­jeev Prasad. For oil and gas com- pa­nies, earn­ings will de­pend on the kind of fuel pric­ing that the gov­ern­ment al­lows them, he added.

“There is a chance that not only the down­stream com­pa­nies, but also com­pa­nies like ONGC, OIL and GAIL (In­dia) Ltd may have to bear some por­tion of un­der-re­cov­er­ies like the old times.”

“For bank­ing, it is about what is the level of pro­vi­sions for bad loans that banks are com­fort­able with. If the pro­vi­sions are higher, it would im­pact their prof­its,” said Prasad, adding the au­to­mo­bile sec­tor may also suf­fer down­grades if vol­umes don’t pick up in the fes­tive sea­son.

So far, the signs are not very good. Given the state of non-bank­ing fi­nance com­pa­nies (NBFCS), they might not push loans for au­tos.

Edel­weiss Se­cu­ri­ties Ltd es­ti­mates Nifty com­pa­nies will post year-on-year net profit growth of 6% in the Septem­ber quar­ter, com­pared to 8% in the June quar­ter. It said that even if its num­bers are met, the first half net profit growth is likely to be 7%, much lower than the full-year FY19 EPS con­sen­sus growth of 23%. “Thus, earn­ings down­grades post-quar­terly re­sults sea­son are likely.”

For the Septem­ber quar­ter, cor­po­rate earn­ings may be skewed in favour of ex­porters thanks to the slid­ing ru­pee, while com­pa­nies im­port­ing raw ma­te­rial or de­pend on crude oil are likely to take a hit on the mar­gins. Key ca­su­al­ties will be oil mar­ket­ing com­pa­nies, paint mak­ers and ce­ment man­u­fac­tur­ers.

The ru­pee eroded 5.55% in the Septem­ber quar­ter to close at 72.49 per dol­lar, while Brent crude surged 4.13% to close at 82.72 per bar­rel.

Ko­tak In­sti­tu­tional Eq­ui­ties ex­pect net profit of BSE-30 Sensex to in­crease 2.3% and net sales 20.7% year-on-year. Edel­weiss ex­pects a tepid Septem­ber quar­ter with yearon-year profit growth for its cov­er­age uni­verse likely to rise by 3% and for cov­er­age ex-commodities and cor­po­rate banks to con­tract 1%—a sharp cut from 15%/13% growth in the June quar­ter.

Au­to­mo­bile com­pa­nies are ex­pected to see a weak quar­ter due to the de­layed fes­tive sea­son. The per­for­mance of banks is un­likely to be im­pres­sive due to high loan-loss pro­vi­sions as well as mark-to-mar­ket losses on in­vest­ment port­fo­lios. Fol­low­ing the con­cerns of a liq­uid­ity crunch in the NBFC sec­tor, in­vestors’ fo­cus will be on the li­a­bil­ity side. Fur­ther, the rev­enue pres­sure on tel­cos may not ease any­time soon due to the in­tense com­pe­ti­tion.

On the pos­i­tive side, ex­port-ori­ented com­pa­nies in the IT and phar­ma­ceu­ti­cals sec­tors will ben­e­fit from a fall­ing ru­pee. Com­pa­nies in the con­sumer prod­ucts sec­tor are likely to post de­cent vol­ume growth aided by ro­bust ru­ral and ur­ban de­mand. Since many have raised prices fol­low­ing a rise in raw ma­te­rial cost, prof­itabil­ity will be broadly in­tact. How­ever, a hand­ful of strong re­sults may not be enough to make up for sub­dued fi­nan­cial per­for­mance of the loss­mak­ing sec­tors. There­fore, hopes of a earn­ings re­vival are fad­ing.

Firms in con­sumer prod­ucts sec­tor may post de­cent vol­ume growth aided by ro­bust de­mand


Cur­rency con­cerns: For the Septem­ber quar­ter, cor­po­rate earn­ings may be skewed in the favour of ex­porters, thanks to the slid­ing ru­pee.

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