Flavour of THE Season
Analysts expect India Inc to present a mixed picture of the April- June quarter

As yet another earnings season dawns, market expectations are rather moderate than optimistic this time. At best, the April-June quarter could deliver a mixed set of earnings reports. At least, that’s what analysts now come to believe.
Some sectors, like steel, cement, airlines and chemicals could come out with robust results while the once storied sectors like telecom, pharmaceuticals and IT could report weak earnings. Power and automobile sectors may deliver modest revenue growth of less than five per cent. Fast moving consumer goods (FMCG) and consumer durables sectors may do well, though will carry the impact of post-demonetisation and pre-GST lull.
Destocking ahead of the GST rollout will also cast a shadow on the working results in some other sectors. Deutsche Bank analyst Abhay Laijawala, in his India Equity Strategy report, said the GST rollout and rupee appreciation will be a drag on the first quarter earnings.
“The consumer staples sector is expected to be a relative outperformer in an otherwise challenging growth environment. De-monetisation and GST implementation are likely to impact the sector’s earnings growth momentum,” Laijawala said.
Kotak Securities, in an earnings preview, said, “We expect the net income of the BSE-30 index to be flat year-on- year. But we foresee 8 per cent YoY decline in net income for our coverage universe, including automobiles (inventory clearing due to GST), downstream energy (lower refining margins and adventitious losses due to recent correction in crude prices), pharmaceuticals (disruption in domestic formulation businesses again due to GST) and telecom (continuation of hyper-competitive sector activity).”
Though the information technology sector will be the first to come with Q1 reports, expectations from the sector are muted in a seasonally strong quarter. Kotak Securities’ IT sector preview said, “We expect organic revenue range of 2.8 per cent decline to 2.6 per cent growth. We expect Infosys to lead in organic growth and expect weak performance from Tech Mahindra, among large names. This quarter will have cross-currency tailwind of 30 to 80 basis points. Growth for companies will be weaker than usual in a seasonally strong quarter, which we attribute to– lack of acceleration in spending among large banks in the US and continuation of small and consulting-heavy digital deals.”

Sharekhan’s result preview for the IT sector said, “Macro challenges coupled with delay in deal cycle time and weakness in some industry pockets will continue to impact the performance of IT sector. April-June quarter, which earlier used to be a seasonally strong quarter, is expected to remain soft. Industry pain and transition impact are clearly reflecting in growth deceleration from 11.5 per cent YoY growth in Q1FY15 to 8.2 per cent in Q1FY16 and current estimates is at 6 per cent YoY growth for Q1FY2017E.”
Deutsche Bank said it expects “aggregate revenue, Ebitda and earnings growth of 7 per cent, -3 per cent and -6 per cent YoY for the Nifty. The 6 per cent forecast decline in earnings may be exaggerated by the large YoY inventory adjustments at the oil marketing companies (OMCs) due to the sharp decline in global oil prices.”
“Ex-energy, Nifty earnings are expected to rise by 4 per cent YoY. GST rollout uncertainties are forecast to impact earnings of companies focused on domestic consumption while exchange rate dynamics are likely to impact earnings of exporters. Industrials, financials and staples are expected to lead earnings growth while energy, telecom and health care are expected to lag.”
“Sectoral aggregates show relatively better performance in industrials, financials and consumer staples, with earnings growth of 16 per cent, 8 per cent and 6 per cent YoY, respectively,” the Deutsche Bank estimated.
Sharekhan said capital goods and engneering sector may see steady top line growth at 10 per cent YoY. Giving company-specific estimates, Sharekhan said it expects it “coverage universe to deliver around 10 per cent YoY top line growth, driven by project- based heavyweights like BHEL (focus on converting slow moving orders into executable orders) and L&T (better order execution).
Among the other project-based companies, AIA, KPTL, KEC, Skipper and Va Tech are expected to deliver top line growth in the range of 17-24 per cent YoY,” it said.
At the same time CG Power revenues are expected to decline due to the discontinuation of overseas operations while Thermax revenues may remain flat due to poor order backlog at the start of FY18 and tepid order inflow during FY17, Sharekhan said.
“We expect Triveni Turbine revenue to grow in double digits, driven by export revenues despite the muted domestic cycle. Among the electrical consumer durable companies like V-Guard, Finolex and Crompton, we expect topline to grow in the range of 8-18 per cent YoY due to seasonally strong quarter for most of the products like fans, switchgears, UPS and coolers,” it said.
Crisil Research expects the aggregate top line of companies in key sectors, excluding banking, financial services and insurance (BFSI) and oil, to have grown around 7 per cent year-on-year in the first quarter of the current financial year. This growth rides on a pickup in consumption, though it remains range-bound at 6-8 per cent for the last sixth quarters after the breakout in Q4FY16 from 0-2 per cent in the preceding four quarters.
Prasad Koparkar, senior director, Crisil Research, said, “Consumption-driven sectors, including automobiles, airlines, FMCG and retail, but excluding telecom, are estimated to have grown at a healthy pace of 10-11 per cent. This is heartening, considering gr­o­wth had slowed following demonetisation to 4-7 per cent in the second half of fiscal 2017. Even commodity-linked sectors are expected to have done well, led by a robust increase in realisations in crude oil, steel and aluminium, and moderate growth in demand.”

Rupee appreciation, along with pricing pressure, is expected to hit export-linked sectors, such as pharma and IT services, culminating in the slowest growth in 16 quarters, Crisil Research said.
Commodity-linked sectors are seen to be doing well, led by a robust increase in realisation in crude oil, steel and aluminium and moderate growth in demand. “Reve-nue growth is not enough to improve profitability, as India Inc faces an Ebitda margin contraction of 100-150 bps to 20.4 per cent in Q1FY18. Pricing pressure and high input costs will lead to margin erosion across sectors, with telecom, pharmaceuticals and chemicals being the key casualties. Higher raw material prices are expected to put downward pressure on automobiles, housing, textiles, sugar and tyres,” Crisil Research said.
However, defeating all the painstaking estimates put together by analysts, earnings seasons tend to hold surprises, positive or negative, for the street. We will know about them in a few days.

Ravi Ranjan Prasad