India Inc to post worst operating profit in two years

It’s practically official: the third quarterz results season will not be good.

Not surprisingly, not a single brokerage is upbeat on India Inc’s results for the December-ended quarter, which kicks off with Infosys tomorrow.

While sectors like metals, autos, telecom and real estate are expected to be a drag on Sensex earnings, there may be relatively better news from IT, energy and consumer goods companies, according to most analysts.

One of the most recently released reports comes from Bank of America Merrill Lynch (BoAML), which says that EBITDA (operating profit) growth for the 30-stock Sensex will fall by 8.5 percent, the worst performance in the past nine quarter. Eight of those 30 companies will also report a fall in profits, the brokerage added.

Here is a quick summary of what different brokerages are saying about four key sectors:

•Automobiles: Despite a moderation in volumes, Ambit Capita, a local brokerage, expects price hikes implemented by companies over the past year to have boosted revenues in the past quarter, barring Maruti Suzuki.

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However, any benefit from a fall in input prices is expected to be negated by adverse currency movements. While Bank of America Merrill Lynch expects 16 percent revenue growth for the auto sector, profits are expected to decline from the previous quarter as well from a year ago because of higher input costs.

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Maruti Suzuki will be the biggest loser in the segment: its revenues and profits are predicted to fall by 20.7 percent and 69 percent, respectively.

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•Capital Goods: The sector is expected to post an 8 percent fall in net profit for the December quarter, while revenues are expected to drop 14 percent, according to a Motilal Oswal Securities report.

The outlook will remain challenging for the sector given the delays in large projects, especially in power. While Motilal Oswal forecasts an earnings contraction for BHEL, Crompton Greaves, Cummins and Siemens, L&T is expected to post flat earnings. The biggest loser is tipped to be BGR Energy: its sales and profits are expected to slide by a steep 39 percent and 62 percent, respectively.

•Real Estate: BoAML expects a muted performance from the sector even though it was a seasonally strong one due to the festive season. The sector continues to be plagued by problems like approval delays and liquidity concerns.

“In the December-ending quarter, developers should make meaningful progress in some major disinvestments to handle liquidity concerns, and the first sign of trend reversals should be seen in DLF’s figure,” Motilal Oswal Securities report noted.

Overall, expect developers to offer a cautious sales guidance for the next six to nine months due to slowing demand and high mortgage rates. DLF is expected to report a 2.3 percent growth in sales, while net profit is predicted to decline by 15.6 percent.

•Consumer goods: The sector is expected to report good growth in volumes. While Hindustan Unilever’s volume growth will continue to be driven by rural markets and its personal care segment, ITC will see sustained growth in its cigarette portfolio, says BoAML. Motilal, meanwhile, forecasts an 18 percent growth in sales and profits for the sector as a whole.

While Godrej Consumer is expected to lead in terms of earnings (32 percent growth), United Spirits is expected to be the biggest loser.

•Pharmaceuticals: The past quarter is expected to have ended strong for pharma companies, led by gains from the rupee’s depreciation as well as ’exclusivity’ launches. Top gainers will include export-oriented firms like Cipla and Sun Pharma, which are expected to report strong margins on the back of improved realisations, according to BoAML.

On the losing side will be companies that have heavy foreign borrowings as a depreciating rupee increases their interest obligations, the brokerage added.