Nifty50 companies’ December-quarter revenue is likely to grow 16% over last year, says a report by Phillip Capital.- Analysts expect it to be a tepid quarter for most sectors, including infrastructure, specialty chemicals, IT and metals.
- However, analysts say banks will continue to outperform with strong tailwinds for the sector despite global challenges.
- NBFCs, FMCG and autos are likely to report moderate to robust growth in the quarter.
Analysts expect it to be a tepid quarter for most sectors, including infrastructure, specialty chemicals, IT and metals. On the other hand, sectors like banks, NBFCs, FMCG and autos are likely to report moderate to robust growth in the quarter.
“Q3FY23 is expected to be a soft quarter along with slight margin improvement. We will be watching for management commentary on India and global demand outlook,” says a report by Phillip Capital. “We are of the view that the financial sector will continue to perform while consumption space will remain under pressure. Investment space is expected to perform well led by public and private capex expansion.”
Seasonally weak quarter for IT, Reliance to have a strong quarter
TCS has kicked off the earnings seasons with lower-than-estimated growth – it reported a 3.98% sequential growth in net profit at ₹10,846 crore in the December quarter. On the other hand, Infosys beat analysts’ expectations with a 20.2% y-o-y increase in its revenue to ₹38,318 crore in Q3 and raised its full-year revenue growth guidance.
HCL Technologies reported a 19.6% year-on-year growth in its topline to ₹26,700 crore, while its net profit grew 19% YoY to ₹4,096 crore, beating analyst expectations in both the areas.
Analysts had expected muted revenue growth from the IT services sector in the third quarter on account of it being a seasonally weak quarter.
“The December quarter is a seasonally weak quarter mainly due to higher furloughs. In addition, macro challenges are leading to weakness in mortgage, luxury retail, high-tech and slowdown in 5G capex,” said a report by IDBI Capital. Furlough is a leave of absence from work for which the employee is not paid.
Meanwhile, the oil-to-telecom conglomerate Reliance Industries is expected to announce a robust quarter due to strong recovery in the retail segment along with decent uptick in other segments.
“We expect Reliance Industries Limited’s (RIL) consolidated PAT to increase by 27% q-o-q to ₹17,316 crore due to improvement in standalone earnings on better refining/petchem margin, decent growth at Jio and strong recovery for retail business,” said a report by Sharekhan.
Banks to see strong December quarter on higher loan rates
Net interest margin (NIM) will see sequential improvement as lending rates have risen in line with RBI’s repo rate increases, say analysts. Since May last year, RBI has hiked interest rates by 225 basis points so far. While banks benefited from rate hikes in Q2, analysts see more room for a further ramp up in Q3 as well.
“We believe business momentum for banks is expected to remain strong, led by strong tailwinds in the sector and is likely to sustain over the medium term as higher inflation gets tamed, revival of the capex cycle, higher consumption, and increased business confidence,” said a report by Sharekhan.
“Strong asset quality outlook, additional provision buffers, higher PCR (provision coverage ratio) levels, increased capital buffers, and core credit cost undershooting augur well for the sector,” added the report.
FMCG may get a boost from price hikes
The fast-moving consumer goods (FMCG) sector is expected to pass the quarter with flying colours on the back of price hikes amid elevated inflation.
“Most of the consumer companies are expected to report decent revenue growth; however, a majority of revenue growth will be driven via price hikes, which companies have taken in past quarters to combat unprecedented raw material inflation. Rural demand continues to remain muted. Delay in winter to impact winter portfolio,” said Phillip Capital.
“We expect our FMCG universe to deliver sales/ EBITDA/ PAT growth of 11%/ 7%/ 8% YoY in 3QFY23. Sustained inflation impacted both volume offtake and margins,” said a report by Antique Stock Broking.
ITC is seen reporting strong growth across businesses with the cigarette business registering a double-digit volume growth. Detergents will likely drive Hindustan Unilever's performance, with margins recovering q-on-q due to a moderation in palm oil - a key input.
Autos to reap benefits of festive quarter
Despite the near-term challenges of semiconductor chip shortage and geopolitical challenges, analysts are optimistic about autos based on high demand for passenger and commercial vehicles.
“Q3FY2023 is expected to be a strong quarter with a 20.4% y-o-y increase in revenue. Margins are expected to show improvement on a q-o-q basis, led by operating leverage benefits, cost rationalisation, and softening commodity prices,” said a report by Sharekhan.
Further, strong demand, easing supply constraints, and falling commodity prices are likely to provide relief to automobile original equipment manufacturers (OEMs) and ancillary companies.
Ferrous players expected to outperform non-ferrous companies
Ferrous players – Tata Steel and JSW Steel – are expected to post better Q3FY23 earnings compared to non-ferrous companies, which include Hindustan Zinc, Hindalco Industries and Vedanta.
“For Q3FY23, we expect steel producers to post higher EBITDA QoQ primarily due to sharp fall in coking coal and iron ore price offsetting decline in sales volume sequentially,” said a report by Centrum broking firm.
After a challenging first half of the financial year, the domestic steel industry should witness a better second half, says Elara Capital. “The recent removal of exports duty and the likely rise in domestic demand led by the start of the busy season should lead to healthy volume for domestic steelmakers,” the report said.
For non-ferrous companies, there are expectations of a marginal fall in quarterly operating profits due to fall in LME (London Metal Exchange) aluminium and zinc prices.
Cement sector: Easing input costs in 2H FY23 to drive earnings
Analysts say the cement industry is seeing a healthy demand environment with improving cement process and decline in pet coke and coal prices.
“Weighted average EBITDA/tonne is expected to recover sharply from a multi-quarter low to ₹765 owing to q-o-q improvement in cement prices, higher demand, and easing power and fuel costs. Hence, operating profits and net profits are expected to rise by 50.9% q-o-q and 77.8% y-o-y, respectively,” said a report by Sharekhan providing estimates for cement companies.
The report said that it expects cement demand to remain healthy in the second half of FY23 alongside improving operating margins. Further, analysts will eye commentaries on ongoing and future capex plans.
BPCL, HPCL, IOC to benefit from falling oil prices
Oil marketing companies – BPCL, HPCL and Indian Oil Corporation – will likely benefit from Brent crude oil prices being on a downtrend since the last couple of months due to a lockdown in China, one of the biggest consumers of oil.
“We expect OMCs’ operating performance would improve on sequential basis in Q3FY23 as marketing under recoveries would reduce sharply supported by a ~$11/bbl q-o-q decline in crude oil price while there has been no change in the retail petrol/diesel price,” said a report by Sharekhan.
The report added that it expects all three OMCs to report positive EBITDA – Indian Oil (₹ 5,836 crore), BPCL (₹3,112 crore) and HPCL (₹629 crore) in Q3FY23 compared to negative EBITDA of ₹8,841 crore, ₹4,148 crore and ₹1,859 crore in Q2FY23, respectively.
Under recoveries is the gap between the cost and the selling price of fuel. If the selling price is lower than the cost price, higher the under recoveries. Thus, a fall in crude oil prices benefits these companies at a time when there has been no hikes in petrol and diesel prices.
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