India Inc is expected to post a marginal growth in net sales and profit in the financial year’s second quarter, ended September, says an earning preview by the city-based equity research and broking company, KR Choksey Shares and Securities (KRC). The estimates are based on the performance of 96 companies who account for 45 per cent of market capitalisation of the stocks traded on the Bombay Stock Exchange.

The KRC analysts expect that net profit of the 96 companies will increase by 0.9 per cent in the second quarter, after three quarters of straight decline. Operating margins are expected to improve, largely due to cost cutting initiatives, revival in demand and fall in commodity prices. Net sales are expected to increase by 0.8 per cent, compared to a double-digit fall in the first quarter.

The fertilisers, metal, media, and real estate sectors are expected to report a decline in sales and profit. While auto, cement, pharma and telecom will report a significant growth in sales and profit. The net profit of the oil and gas sector is expected to be flat, on a double-digit decline in net sales. Software services and banking companies are expected to show single-digit growth in sales and profit.

The sales of the automobiles and auto ancillary sector are expected to grow by 20 per cent on improved liquidity, decrease in interest rates and depreciation benefits on commercial vehicles and trucks. Ashok Leyland and Bajaj Auto are likely to report a significant jump in sales and profit over the sequential quarter, while Hero Honda and Maruti Suzuki are expected to report a 50 per cent year on year net profit growth. The impact of input costs such as steel, and aluminium are likely to be felt on profit margins.

Banks and finance companies are expected to feel margin pressure, as interest rates remain subdued. The trading gains may not be significant, while fee income growth will be higher for public sector banks. Bank of Baroda, Bank of India, IDBI Bank, Punjab National Bank and State Bank of India are expected to do well. Among private banks expected to do well are Axis Bank, HDFC Bank and Kotak Mahindra Bank, while growth at the second largest, ICICI Bank, will be negligible.

The cement sector expects over 60 per cent growth in profit on strong margins due to the fall in coal prices in the international market. The fall in cement prices are expected to hurt cement companies, which have significant exposure in the North. The demand has continued to be robust due to spending on infrastructural projects and revival in the real estate sector.

The fast moving consumer goods (FMCG) companies are expected to feel pressure on margins due to rising prices, with the seven companies reviewed by KRC expected to report a three per cent rise in net sales. Hindustan Unilever is expected to post flat profit growth, while ITC’s net profit is expected to rise by around 14 per cent.

Software service companies are expected to show single-digit growth in sales and profit due to cross-currency impact, a difficult business environment faced by BFSI (banking, financial services and insurance) clients, and increase in wages and losses due to forward contracts. Of the software giants, Infosys Technologies is expected to show single-digit growth in revenue and double-digit growth in net profit. TCS and Wipro are expected show a single-digit growth in sales and profit.

A sustained rally in base metals is expected to result in sequential improvement in financial performance of non-ferrous companies. All companies in the steel sector have posted good growth in monthly sales volume on the back of revival in the auto sector and increased infrastructure spending.

The domestic pharma industry has continued with its growth trajectory and recorded a growth of around 12-13 per cent. Cipla, Dishman Pharma and Dr Reddy’s Labs are expected to show robust performance, and Glenmark Pharma, Ranbaxy and Sun Pharma to post a decline in net profit.

Telecom companies are expected to show a decline in average revenue per user by around 9-20 per cent due to expansion into rural areas and lowering of entry prices for owning a handset, through attractive offers and customer retention efforts. Bharti Airtel and Idea are expected to show robust results and Reliance Communications to show a decline in net profit.

source: Business-Standard

Tags: Q2 results, quartar 2 results

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