Dark clouds over Sensex firms' Q1 score-card

Net profits may dip 4.9% y-o-y, but the silver lining is that performance may be better than the preceding quarter

Leading Indian companies are likely to report a subdued performance in the first quarter of this financial year, with the combined net profit of the 30 Sensex firms expected to decline by 4.9 per cent compared to the year-ago period while net sales growth is estimated to remain almost flat.

The silver lining, however, is that both revenue as well as profit numbers would be better than the preceding quarter (See chart). The Sensex companies’ net profit was down 18.7 per cent on y-o-y basis in the March 2015 quarter while top line declined by 7.3 per cent.

The combined net profit of the companies in the sample may decline to Rs 54,739.4 crore from Rs 57,537.9 crore (Rs 575.38 billion) a year ago while their net sales are expected to decline marginally to Rs 451,935.8 crore (Rs 4,519.35 billion). Tata Motors is likely to top the revenue charts in the first quarter followed by Reliance Industries and Tata Steel. The profits league table is likely to be led by Reliance Industries followed by Tata Consultancy Services and Coal India.

The analysis is based on the first quarter earnings estimates by leading brokerage houses such as Kotak Institutional Equity, Philip Capital, Sharekhan, Religare, Edelweiss and Karvy, among others. The coverage of the companies is however, not uniform and brokerages have estimated earnings for all the companies in the sample.

The sectoral earnings trend visible in the previous quarter is likely to play in the current quarter as well. Among individual companies, Maruti Suzuki is likely to top the growth charts again with 60 per cent year-on-year jump in net profits despite a muted 1.4 per cent growth in net sales. Pharma maker Cipla would be another winner with 37.3 and 40.3 per cent y-o-y growth in net profit and net sales respectively in the first quarter. It will be followed by Bajaj Auto (28.9 per cent growth in net profit), HDFC Bank (22.4 per cent), Hero MotoCorp (21.6 per cent) and Bharti Airtel (18.9 per cent).

A better show by these companies is likely to be more than negated by the likes of Tata Steel that may report a net loss compared to net profit during the same quarter last fiscal. Other spoilers are likely to be Hindalco (88 per cent decline in net profit), Tata Motors (- 45.2 per cent), ONGC (- 34.5 per cent) and Larsen & Toubro (- 19.2 per cent).

In comparison, defensives such as IT, pharma and consumer staples companies may remain on the sidelines with low single digit growth in revenues and profits in the first quarter.

Not surprisingly, brokerages don’t see it as sign of earnings recovery. “We are yet to see a secular cyclical recovery. Broad?based earnings revival is unlikely in the first quarter. Our coverage universe (ex oil & gas) shows an earnings decline of almost 4 per cent on y-o-y basis despite sales growth of 5 per cent,” writes Anindya Bhowmik and Naveen Kulkarni of Philip Capital in their recent report on first quarter earnings. Their universe includes 129 companies across 14 sectors and it’s more broadbased than the benchmark Sensex.

“Key disappointments are likely to be metals (81 per cent decline in net profit), cement (20 per cent decline), and finance (8 per cent) decline. Automobiles (net profit up 37 per cent excluding Tata motors) are likely to be the toast of the season,” writes Philip Capital’s Bhowmik. The brokerage expects strong earnings growth (high double digit) in media, agri inputs, telecom and power and moderate growth (low single digit) in defensives such as pharma, IT and FMCG.

Kotak Institutional Equity is equally sanguine about the first quarter earnings season. It expects net income (net profit) to decline by 1.1 per cent on year-on-year basis with automobiles, cement and metal & mining sectors likely to show biggest decline in earnings. On ex-energy basis, it expects net profits to decline by 3.8 per cent on y-o-y basis.

Note: Sensex companies numbers exclude Vedanta        
Source: Capitaline, Brokerages, Bloomberg                
Compiled by BS Research Bureau